CYPB-Ramius Sends Letter to Newly Appointed Lead Independent Director of Cypress
Cypress Bioscience (NASDAQ:CYPB)
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Today : Wednesday 25 August 2010
Ramius Value and Opportunity Advisors LLC, a subsidiary of Ramius LLC (collectively, "Ramius"), today announced that it delivered a letter to Daniel H. Petree, the newly appointed lead independent director of Cypress Bioscience, Inc. ("Cypress" or "the Company") (Nasdaq: CYPB). In the letter, Ramius expressed concern regarding former lead independent director Jean-Pierre Millon's abrupt resignation last week from the Board citing "a difference of opinion with respect to the timing of the execution of [Cypress'] strategy." In the letter, Ramius also requested an in-person meeting with any or all of the continuing independent members of the Board. Finally, Ramius confirmed its commitment to pursuing an acquisition of Cypress and repeated its willingness to consider raising the value of its acquisition proposal in the event Ramius is granted limited due diligence and the Company agrees to negotiate in good faith.
Ramius Partner Managing Director Jeffrey C. Smith stated, "The very fact that Mr. Millon felt compelled to resign from the Board calls into serious question this Board's lack of true independence and balance. It seems clear to us that a director expressing a differing view was forced to relinquish his leadership role on the Board and subsequently chose to resign from the Board. At best, this demonstrates an unhealthy board environment. At worst, it is symptomatic of a truly dysfunctional board that continues to act without regard to the best interests of shareholders."
Mr. Smith went on to say, "We stand ready, willing, and able to consummate a transaction and hope that the Board will uphold its fiduciary responsibility to engage with us regarding our proposal."
The full text of the letter follows:
Ramius Value and Opportunity Advisors LLC, together with its affiliates (collectively, "Ramius"), has reviewed the letter sent by Cypress Bioscience Inc. ("Cypress" or the "Company") on August 17, 2010. As the newly appointed lead independent director, we have recently attempted to reach out to you directly to start a dialogue. Unfortunately, to date we have yet to receive any response.
The Board Continues to Reject Our Efforts to Engage in Negotiations While Ignoring Our Willingness to Increase our Acquisition Proposal
In your letter dated August 17, 2010, the Company, in trying to justify its refusal to enter into negotiations with us, states only its belief that we have not made any substantive change to our offer. What the Company conveniently fails to acknowledge is our willingness to increase the value of our acquisition proposal if we are granted due diligence and the Company commits to either negotiating a transaction with us or commencing an auction process for the sale of the Company.
It's ironic, indeed, that the Company appears now to be concerned that shareholders receive full and fair value for their shares while for the past several years this Board has overseen massive destruction of shareholder value. Every day that goes by under management's current ill-advised strategy jeopardizes the chance that shareholders will ever have the opportunity to receive full and fair value for their shares.
That you continue to rebuff our overtures to engage in meaningful discussions around our offer while continuing to be so quick to approve highly speculative, overpriced, and value-destroying acquisitions only serves to reinforce our belief that this Board has completely disregarded the best interests of shareholders and its fiduciary duties.
Perhaps Jean-Pierre Millon, the former lead independent director, recognized this before abruptly resigning from the Board last week.
The Resignation of Lead Independent Director Jean-Pierre Millon is Disturbing and Emblematic of a Much Maligned Board of Directors
After speaking with Jean-Pierre Millon on several occasions, we were dismayed to learn that after five years of service, the position of lead independent director was suddenly being "rotated" away from Mr. Millon. At first, we could not understand why such an unexpected change would be made while we were attempting to open a constructive dialogue. However, it became clear the following day when the Company made an 8-K filing with the Securities and Exchange Commission disclosing that Mr. Millon had resigned from the Board of Directors (the "Board") citing "a difference of opinion with respect to the timing of the execution of [Cypress'] strategy."
According to this year's proxy, the Board appointed Mr. Millon as the lead independent director in April 2005 to help reinforce the independence of the Board as a whole and to serve as an effective balance to a combined Chief Executive Officer/Chairman. The very fact that Mr. Millon felt compelled to resign from the Board calls into serious question this Board's lack of true independence and balance.
Based on our experience of engaging with board members from over 40 public companies over the past eight years, an effective board requires directors who are willing to engage in spirited debate and who may disagree from time to time regarding corporate strategy or decision making. It seems clear to us that a director expressing a differing view was forced to relinquish his leadership role on the Board and subsequently chose to resign from the Board. At best, this demonstrates an unhealthy board environment. At worst, it is symptomatic of a truly dysfunctional board that continues to act without regard to the best interests of shareholders.
We find the decision to name you as the new lead independent director equally disconcerting. We believe this decision further concentrates control of Cypress with two individuals, Jay Kranzler and you. As we have noted in prior correspondence, you are already the sole member of the Finance Committee, giving you the sole authority to evaluate, review, facilitate and approve the selection and engagement of financial advisors in connection with strategic transactions, licenses, joint ventures, acquisitions and other similar transactions. Additionally, you and Dr. Kranzler, the CEO of Cypress, are the only two members of the Strategic Committee, which meets with and advises management as the Company considers product licensing, potential acquisitions and other strategic opportunities.
Now, in the midst of an acquisition proposal, when it is most important for the Board to act independently of management, the Board gave you the added responsibility of lead independent director. In our opinion, this shows bad judgment on the part of the entire Board and concentrates power and decision making with just two members of a seven person board.
Our Acquisition Proposal Represents a Much Better Alternative for Maximizing Shareholder Value than the Company's Ill-Conceived and Destructive Strategy
In your letter dated August 17, 2010, the Company states that "[Ramius'] proposed purchase price may represent a premium to a given day's closing stock price, but [the Board's] focus is on the value of the Company's current business and future prospects." The fact remains that our offer provides shareholders with a substantial premium for their shares and protects them from the very real value-destroying actions taken by this Board and management team. The dismissive tone and apparent detachment from reality force us to remind the Board that it has overseen the destruction of a massive amount of shareholder value, even when looking as far back as 1995 when Dr. Kranzler was first named CEO.
The stock price of Cypress has declined dramatically over almost any extended period of time. Dr. Kranzler's biography on the Company's corporate website states that, since he was appointed CEO in December 1995, "Cypress has successfully raised $226 million in new funding..." Compare this to the average market capitalization of the Company for the month prior to our acquisition proposal of under $100 million. The Board of Cypress, in its many different forms, has failed to create value for shareholders in more than 25 years as a public company. Unfortunately, in the absence of our offer, Cypress shareholders would have no reason to expect anything different in the future.
The letter further states that, "[The Board has] believed for some time that the market has seriously undervalued Cypress and [Ramius'] interest in acquiring the Company has confirmed our long held belief." We believe it is disingenuous for the Board to make statements like this when no director has purchased a single share of Cypress stock since 2007. Instead, the Board has continued to collect substantial cash payments and options grants over the years without reinvesting a penny of the proceeds in Cypress shares. As of this year's proxy, the current officers and directors of Cypress owned outright common shares representing approximately 1.25% of the shares outstanding. This represents a current market value of less than $1.8 million, or an average of $177,362 per officer and director. This pales in comparison to the egregious compensation paid to management and the Board while shareholders have suffered from the Company's horrific performance.
Finally, you state, "Our Board and management team remain committed to building long term stockholder value, and we believe that our current strategy of developing a portfolio of CNS drug candidates will deliver superior value to Cypress stockholders." Wake up! Your shareholders, the true owners of the Company, do not support this strategy and have no confidence in your ability to deliver value. Just look at the reaction to the acquisition of BL-1020 from Bioline. The stock fell 38% in one day, destroying $63 million in shareholder value. The stock continued to drop throughout the remainder of June and into July and remained more than 40% below the pre-Bioline deal stock price prior to the announcement of our acquisition proposal on July 19th.
This acquisition follows the disastrous acquisition of Proprius in 2008 which yielded substantial losses for shareholders. Management has now belatedly acknowledged that the acquisition of Proprius has failed. How many more value-destroying transactions will this Board approve?
Prior to the abrupt resignation of Mr. Millon, we felt that, at a minimum, we could have a dialogue with the lead independent director. Despite a total lack of response from you to date, we hope and expect that we can continue this dialogue with you. We had requested an in-person meeting with Mr. Millon and were awaiting a response at the time of his resignation. We would now like to re-direct this request to you for an in-person meeting with any or all of the continuing independent members of the Board.
We once again confirm our commitment to pursuing an acquisition of Cypress. We implore the Board to take no further value-destroying actions or approve any further acquisitions. We have repeatedly expressed our willingness to consider raising the value of our acquisition proposal in the event we are granted limited due diligence and the Company agrees to negotiate in good faith. We stand ready, willing, and able to consummate a transaction and hope that the Board will uphold its fiduciary responsibility to engage with us regarding our proposal.
Jeffrey C. Smith
Partner Managing Director
About Ramius LLC
Ramius LLC is a registered investment advisor that manages assets in a variety of alternative investment strategies. Ramius LLC is headquartered in New York with offices located in London, Luxembourg, Tokyo, Hong Kong and Munich.
Media: Sard Verbinnen & Co
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