NEWPORT BEACH, Calif.--(BUSINESS WIRE)--Engaged Capital, LLC (together with its affiliates, “Engaged Capital”), an investment firm specializing in enhancing the value of small and mid-cap North American equities and a 4.8% shareholder of Benchmark Electronics, Inc. (“BHE” or the “Company”) (NYSE: BHE), announced today that it delivered a letter to the Board of Directors (the “Board”) of BHE on January 29, 2016, formally nominating the following highly qualified individuals for election to the Board at the upcoming 2016 Annual Meeting of Stockholders:
- Robert K. Gifford – former President of Supply Chain at Ingram Micro;
- Lisa M. Kelley – current Chief Audit Executive at Avnet and former Vice President of Corporate Development at Plexus;
- Jeffrey S. McCreary – former Senior Vice President at Texas Instruments; and
- Brendan B. Springstubb – Senior Analyst at Engaged Capital.
Engaged Capital further notified the Board it is ready and willing to negotiate a settlement to avoid a distracting and costly proxy contest. However, due to the Board refusing to engage with Engaged Capital in any meaningful way on the parameters for Board change, Engaged Capital chose to make its nominations public.
The attached letter to the Board accompanied the formal nomination:
January 29, 2016
Board of Directors
Benchmark Electronics, Inc.
3000 Technology Drive
Angleton TX, 77515
Members of the Board:
Engaged Capital, LLC (together with its affiliates, “Engaged Capital”) currently owns 2,027,327 shares of common stock of Benchmark Electronics, Inc. (“BHE” or the “Company”), representing approximately 4% of the Company’s outstanding shares. As we have expressed to you numerous times, we believe BHE is undervalued by at least 50% due to poor execution in two areas entirely under the control of management and the Board of Directors (the “Board”): (i) management’s inefficient use of working capital and (ii) the Board’s undisciplined and unsophisticated approach to capital allocation. While we appreciate the extensive dialogue we have had to date, we have been continuously disappointed by the Company’s lack of urgency in addressing our concerns and the opportunities that we have identified to create shareholder value.
Specifically, BHE’s working capital management remains woefully inefficient compared to peers. This inefficiency is not being driven by an inventory management problem – we believe it is simply a product of poor receivables and payables management. BHE is the only EMS company that pays its suppliers faster than it is paid by its customers. What’s particularly startling is that if management were to bring BHE’s receivables and payables management in line with its closest peer, Plexus Corp, we believe BHE could free up an astonishing $290 million of cash – $5.75 per BHE share – or ~30% of the Company’s market valuation. Given the significance of this cash release relative to BHE’s share price, we had hoped the Board would push management to aggressively pursue this opportunity when we highlighted it to you last June. Instead, we have been continuously disappointed by the lack of urgency the Company has demonstrated towards releasing this phenomenal amount of trapped shareholder capital.
Additionally, the recent acquisition of Secure Technology (“Secure”) has heightened our concern regarding the Board’s approach to capital allocation. We do not understand how the Board could approve the acquisition of Secure given BHE’s significant undervaluation at the time of the announcement. Specifically, analysts estimate that BHE paid ~12-14x EBITDA for Secure. In contrast, at the time the acquisition was announced, BHE was trading under 4x EBITDA and 11% below tangible book value. Even if analysts are overstating the multiple paid, we struggle to see how this acquisition can generate returns for shareholders that are greater than repurchasing BHE’s highly undervalued shares.
As a consequence of these actions (and inaction), we have lost confidence in the ability of this Board to unlock the significant value that remains trapped in BHE shares. We believe it is imperative that the Board be reconstituted with new directors who will instill an emphasis on ROIC, a disciplined approach to capital allocation and an unrelenting focus on shareholder value-creation. We also believe that BHE would benefit from the perspective of a significant shareholder in the boardroom and are concerned with the Board’s lack of a substantial vested interest in shares of BHE, which we believe may compromise its ability to properly evaluate and address the opportunities to enhance shareholder value at the Company with the best interests of shareholders in mind.
As of last year’s annual meeting of shareholders, BHE directors and executive officers collectively owned less than 2.4% of the Company’s outstanding shares and have not purchased a single share of BHE stock this decade. It seems apparent to us that with so little “skin in the game” and not enough confidence in the Company to engage in meaningful share purchases, the Board does not have the same commitment to shareholder value as we do. Accordingly, we are formally providing the Board notice of our nomination of four highly qualified candidates for election to the Board at the upcoming 2016 Annual Meeting of Shareholders. We believe these individuals possess the financial and capital allocation acumen the Board urgently needs. Our nominees are:
Robert K. Gifford, age 58, served as Senior Executive Vice President and President of Supply Chain Solutions at Ingram Micro Inc. (NYSE: IM), a global technology distributor and a leading technology sales, marketing and logistics company for the IT industry (“Ingram”), from November 2013 to June 2015. He also served as Ingram’s Executive Vice President and Corporate Officer of Global Logistics, from June 2010 to October 2013. Prior to Ingram, Mr. Gifford served as Senior Vice President and Corporate Officer of Global Supply Chain at Ecolab Inc. (NYSE: ECL), a leading provider of cleaning and sanitizing products to healthcare and food and beverage industries worldwide (“Ecolab”), from 2005 to 2010, and as Vice President of Ecolab’s North America Chemical Supply Chain & Global Equipment Supply Chain, from 2004 to 2005. Prior to Ecolab, Mr. Gifford progressed from early management roles beginning in 1996 at Compaq Computer Corporation prior to its acquisition by Hewlett-Packard Company (n/k/a HP Inc. (NYSE:HPQ))(“HP”), to serving as Vice President of Worldwide Logistics and Program Manager of HP, from 2002 to 2004. In addition to his corporate leadership experience, Mr. Gifford has served on a number of non-profit organizations, including as Chairman of the Board of Directors of Second Harvest Food Bank of Orange County (“Second Harvest”), an organization dedicated to alleviating hunger, since June 2013, and as a member of the California Leadership Council of The Nature Conservancy, the leading conservation organization, which he joined in 2010, having previously served as Chairman of its Minnesota, South Dakota and North Dakota Chapters. Mr. Gifford joined the Board of Second Harvest in 2010 and formerly served as Vice Chairman until June 2011. He also previously served as Chairman of the Board of Directors of the Minnesota Second Harvest Heartland. Since leaving Ingram in June of 2015, Mr. Gifford has focused on his work with both Second Harvest and The Nature Conservancy while also providing consultation services to companies looking to enhance their productivity and profitability through Supply Chain Operations and Back Office Optimization. Mr. Gifford received his MBA from Texas A&M University and his Bachelor’s in Manufacturing Management from San Jose State University.
Lisa M. Kelley, age 49, currently serves as the Chief Audit Executive of Avnet, Inc. (NYSE:AVT), a global distributor of electronic components and embedded subsystems (“Avnet”). Prior to joining Avnet in December 2014, Ms. Kelley served as Chief Accounting Officer and Vice President of Finance – Corporate Accounting and Global Shared Services at Asurion, LLC, a global leader in technology protection services (“Asurion”), from March 2013 to February 2014. She also served as Asurion’s Vice-President and Divisional Chief Financial Officer - Supply Chain, Customer Care and Risk/Insurance from September 2005 to March 2013. Prior to Asurion, Ms. Kelley served as the Chief Accounting Officer of Brightpoint, Inc., a then publicly traded distribution and logistics services company supporting the global wireless telecommunications and data industry that was later acquired by Ingram Micro Inc. (NYSE:IM), from July 2003 to June 2005. From June 1992 to June 2003, Ms. Kelley held various positions at Plexus Corp. (NASDAQ:PLXS), a global electronics contract manufacturer, including as Vice President of Corporate Development, Vice President of Finance, Corporate Controller and Treasurer. From 1986 to 1992, Ms. Kelley held various financial positions with Virchow Krause & Company, LLP, a Midwest certified public accounting firm. She is a Certified Public Accountant and Certified Management Accountant. Ms. Kelley earned an MBA from the University of Wisconsin and a Bachelor’s degree in Accounting from Lakeland College.
Jeffrey S. McCreary, age 59, has been an independent management consultant since 2006 and has served on the board of directors of Isola Group, a leading global material sciences company that designs, develops, manufactures and markets laminate materials used to fabricate advanced multilayer printed circuit boards (“Isola”), since 2006. From August 2015 to January 2016, he served as the Interim President and Chief Executive Officer of Isola. From June 2012 to October 2014, Mr. McCreary served as a member of the board of directors of Integrated Device Technology, Inc. (NASDAQ: IDTI) (“Integrated Device Technology”), which develops system-level solutions that optimize its customers’ applications. Mr. McCreary served as the Interim President and Chief Executive Officer of Integrated Device Technology from August 2013 to January 2014 and previously served as a member of its Audit and Nominating & Governance Committees. From December 2011 until its acquisition by Imagination Technologies Group plc in February 2013, Mr. McCreary served as a director of MIPS Technologies, Inc. (NASDAQ: MIPS), a leading provider of industry-standard processor architectures and cores for digital home, networking and mobile applications. Mr. McCreary served as a member of the board of directors of the Gennum Corporation, a provider of semiconductor solutions and intellectual property cores, from 2008 until its acquisition by Semtech Corporation in March 2012. Mr. McCreary is a former Senior Vice President at Texas Instruments, which develops analog, digital signal processing RF and DLP semiconductor technologies. He was the Manager of Texas Instruments’ Worldwide Sales and Marketing, from 1998 through 2005, where he directed the global sales organization. Mr. McCreary held a variety of other executive positions within Texas Instruments, including the General Manager of Advanced Logic Products and General Manager of Worldwide Military Semiconductors. Mr. McCreary has led organizations conducting product design and development, manufacturing, marketing, and sales. His book, “Creating the I in Team” was published in 2007. He is also currently working as a special consultant to the National Hockey League (NHL) Coaches Association. Additionally, Mr. McCreary is a long-time member of the Board of Trustees of the Rose-Hulman Institute of Technology. Mr. McCreary holds a Bachelor’s degree in electrical engineering from the Rose-Hulman Institute of Technology and received an honorary doctorate in engineering from the Rose-Hulman Institute of Technology in 2004.
Brendan B. Springstubb, age 32, has been a Senior Analyst at Engaged Capital, a California based investment firm and registered advisor with the SEC focused on investing in small and mid-cap North American equities, since June 2013. Prior to joining Engaged Capital, Mr. Springstubb held multiple roles with Relational Investors, LLC (“Relational”), a $6 billion activist equity fund, from June 2005 to April 2013. At Relational, Mr. Springstubb was most recently the senior analyst covering the healthcare sector where he was responsible for identifying and overseeing activist investment opportunities and communicating with portfolio company management teams. Prior to leading the healthcare group, Mr. Springstubb was a generalist covering investments in the telecom, financial and technology sectors. Mr. Springstubb earned a Master’s degree in Biotechnology with a dual concentration in Biotechnology Enterprise and Regulatory Affairs from Johns Hopkins University and a Bachelor’s degree in Economics and Molecular Biology from Pomona College. Mr. Springstubb is also a CFA Charterholder and a Certified Financial Risk Manager.
As we have discussed with you, it is always our intention to work collaboratively with the boards and management teams of our portfolio companies and BHE is no exception. Rather than wasting management’s time and shareholders’ capital on a campaign against our highly qualified nominees, let us work together to bring new perspectives into the boardroom that will help create lasting value for all shareholders.
Glenn W. Welling
About Engaged Capital:
Engaged Capital, LLC (“Engaged Capital”) was established in 2012 by a group of professionals with significant experience in activist investing in North America and was seeded by Grosvenor Capital Management, L.P., one of the oldest and largest global alternative investment managers. Engaged Capital is a limited liability company owned by its principals and formed to create long-term shareholder value by bringing an owner’s perspective to the managements and boards of undervalued public companies. Engaged Capital manages both a long-only and long/short North American equity fund. Engaged Capital’s efforts and resources are dedicated to a single investment style, “Constructive Activism” with a focus on delivering superior, long-term, risk-adjusted returns for investors. Engaged Capital is based in Newport Beach, California.