OTTAWA, July 14 /CNW/ - The Concerned Shareholders of Zarlink
Semiconductor Inc. announced today that they are distributing a letter to all
the Company's shareholders reminding them of the reasons change is needed at
Zarlink and that the time for that change is now.
The Concerned Shareholders are Scott Leckie, individually and through
funds he manages, as well as David Banks and Daniel Owen. Collectively they
own or control more than 5.9% of Zarlink's common shares. On July 7, 2008,
they filed a Concerned Shareholder Proxy Circular nominating five new
directors to the Zarlink Board and calling for the replacement of Chief
Executive Officer Kirk Mandy with a new leader who can develop the Company's
At the Company's annual and special meeting scheduled for July 23, 2008,
shareholders will decide between the current Mandy Board and the Concerned
Shareholder Nominees who bring a new strategy, a new commitment to the
creation of shareholder value at Zarlink, and a proven record of value
generation at other companies.
In order for their votes for change to be counted at the annual and
special meeting, shareholders' BLUE proxies must be submitted by 5:00 p.m.,
Eastern Time, on Friday, July 18, 2008.
The Concerned Shareholders' letter points out the massive loss in
shareholder value suffered under Kirk Mandy and the current Board of
Directors. It also describes the Concerned Shareholder Nominees' experience in
While the current Mandy Board has said it believes it is safer to keep
Zarlink on its present disastrous course, the Concerned Shareholders advise
that: "The greatest risk for Zarlink is the status quo. Leaving the Company in
the hands of the current Board and CEO means there is significant risk that
the value destruction of the past six years will continue. Change creates the
opportunity for renewed shareholder value through new leadership and a new
Earlier today, the Concerned Shareholders also released a letter sent to
Kirk Mandy and Zarlink Chairman Henry Simon demanding that the Company end its
campaign of misinformation and obstruction and demanding it withdraw false and
malicious statements it has made about the Concerned Shareholders. A copy of
that letter is available at www.yourzarlink.com.
The full text of the Letter to Zarlink Shareholders is below:
Concerned Shareholders of Zarlink Semiconductor Inc.
July 11, 2008
Dear Fellow Zarlink Shareholder:
The deadline for voting for much-needed change at Zarlink Semiconductor
Inc. is approaching. By Friday, July 18, 2008 you must decide the direction of
your company: whether it will be allowed to continue to deteriorate under the
current leadership, or be redirected and reinvigorated by a new Board and new
Chief Executive Officer.
On July 10, Zarlink Chairman Henry Simon, who has been on the Board for
more than 16 years, and CEO Kirk Mandy, who has been with the Company for over
20 years, wrote to you saying: "Now is not the time for a sudden change in
leadership, direction, or strategy."
Like many long-time Zarlink shareholders who have seen their investment
evaporate, we disagree in the strongest possible terms:
- Now is the time for change. Only you can make that change. -
The facts support us. We have laid them out clearly in our Concerned
Shareholder Proxy Circular which was sent to you and is available at
www.yourzarlink.com. There is no need to repeat them here. But, to help you
make this important decision, we offer some facts to counter the letter from
Mr. Mandy and his Board.
"A Questionable Track Record"?
Consider the record of the Mandy Board. It is far beyond questionable. It
is simply disastrous for shareholders. More than 95% in lost share value since
2002. More than 60% in the past three years since Kirk Mandy regained the CEO
position. Almost US$500 million in accumulated net losses from continuing
operations since 1999 when Kirk Mandy first became CEO. Zarlink has burned
through almost US$150 million in net cash in the past 12 months.
The fact is that Zarlink has not been able to increase revenues in seven
years - unless it acquires them. Analysts expect that declining trend in
organic revenue to continue this year, assuming that revenues from last year's
Legerity acquisition do not decline from historical levels. This weakness is
despite the company spending more than US$400 million on R&D and over
US$140 million on acquisitions over those seven years. Using valuable
shareholder resources and encumbering the company with restrictive and
expensive debt in a failed effort to reverse the declining revenue trend is
more than bad strategy; it is bad management.
At least some of the revenue decline can be blamed on Zarlink's diverse
product portfolio which does not appear to meet market demand. Independent
studies show that Zarlink has no leading products in any of the segments it
serves, despite spending more on R&D relative to its competitors.
Further, despite the Mandy Board's claim that the company's cost
structure is improving, the trend has been the exact opposite since Kirk Mandy
returned as CEO. Fiscal 2008 was one of the worst years for profitability in
Zarlink's history, with a net loss of US$48.4 million or US$0.41 per share.
Overhead costs (SG&A) have increased every year since Kirk Mandy's return -
from US$35.6 million in 2006 to US$55.8 million in 2008. As a percentage of
revenues those costs have grown from 24.6% to 30.4% over those years.
Control vs Alignment
The Concerned Shareholders own or control more than 5.9% of Zarlink's
shares. The Mandy Board owns less than 1%. Yet they do not question why they
should control the Company with such a minor investment. Our interests as
shareholders are much more aligned with yours than the Mandy Board can
possibly claim. We gain only when all shareholders benefit.
Composition of the Board
We have recommended shareholders vote for three of the management
nominees who we hoped would serve with the new directors. The Company has
since announced that these three have not consented, and will not consent, to
serve with the Concerned Shareholder Nominees. We had hoped that they would
remain to provide continuity for the benefit of all shareholders. Instead,
they have chosen to try to help entrench Mr. Mandy and the current Board.
If the three management nominees refuse to serve, the five Concerned
Shareholder Nominees are sufficient to constitute a new Board for Zarlink. The
background and excellent qualifications of the Concerned Shareholders
Nominees, namely David Banks, Neil Carragher, Kalai Kalaichelvan, Daniel Owen,
and Luke Smith, are provided in our Proxy Circular.
Henry Simon and Kirk Mandy claim that lengthy experience in the
semiconductor industry is a prerequisite for a Zarlink Board. We agree
industry experience is an asset and our nominees have it. But it is clearly
not enough, based on the performance of the Mandy Board. Their decades of
combined industry experience has led Zarlink to the brink of disaster. They
have failed to demonstrate the basic understanding that Zarlink is not in
business just to make semiconductors. It is in business to make money for
We believe that what Zarlink needs is the combination of industry
experience, the ability to execute a strategy, and proven business leadership
that has created shareholder value. The Concerned Shareholder Nominees bring
all that to the Board.
- Dynex Power Inc.: A public company also descended from Mitel, Dynex
has been rescued in the last three years by the team led by David
Banks and Daniel Owen. It recorded record earnings in 2007 and is
expected to surpass that in 2008. The share price recovered from a
low of $0.035 to a proposed acquisition price of $0.55.
- Sherritt International: Daniel Owen and Neil Carragher, along with
Ian Delaney and Eric Sprott and a few others, convinced Sherritt
shareholders to replace the board and CEO with their own nominees.
This was a hugely successful exercise in shareholder democracy. The
company's assets now are approaching $7 billion and shareholder value
has been multiplied several times over, as is well known.
- Penna plc: Shareholders supported the efforts of David Banks and
Daniel Owen to persuade the board and CEO to step down and be
replaced by the Banks/Owen nominees. A UK human resources company,
Penna shares were trading at approximately 87 pence then, and by the
time Owen left the board a few years later, the price had surpassed
- Dynatec Corp.: A public mining services company that was refocused
and redirected to become a mining company with the help of David
Banks. Its shares recovered from a low of $0.17 to $5.50.
These are just four of many examples over the years in which the
Concerned Shareholders Nominees have created value for shareholders. They can
do the same for Zarlink.
Strategic Plan vs Strategic Action
There are significant differences between the Concerned Shareholders plan
to enhance value at Zarlink and the Board's "Rebuilding Strategy" which
provides shareholders with no more specifics despite their access to company
information and the time they have taken to develop it, review it, analyze it
and consider it.
The important difference is not just between the strategies, but the
ability to execute by those responsible for implementing the strategy. The
Concerned Shareholder Nominees are committed to action to enhance value. They
include an interim CEO with proven turnaround experience who is ready to start
the process immediately while the new Board identifies a new permanent leader.
The Mandy Board's commitment to value is not apparent in the results.
Risk vs Reward
Henry Simon and Kirk Mandy claim there is risk in the Concerned
Shareholders action plan for Zarlink. In fact, the opposite is true:
- The greatest risk for Zarlink is the status quo. -
Leaving the Company in the hands of the current Board and CEO means there
is significant risk that the value destruction of the past six years will
continue. Change creates the opportunity for renewed shareholder value through
new leadership and a new corporate strategy.
The fact is that the recent improvement in Zarlink's share price is
largely attributable to the market's favourable reaction to the possibility of
real change at the Company following the announcement of the Concerned
Shareholders letter to the Mandy Board.
Henry Simon and Kirk Mandy "promise that we will continue to work hard"
The current Zarlink leadership have not kept the most important promises
they have made in at least eight years. Year after year, they have promised
that Zarlink would become "strong", "successful" and profitable. They have
failed to fulfill any of these promises.
The Board and CEO are not elected or appointed to "work hard." They are
expected to take action and produce results. They have done neither.
As far back as the fiscal 2002 annual report, Henry Simon said: "I know
that all necessary actions have been taken to overcome the industry's
difficulties while at the same time preparing for a prosperous future." Six
years later, he and Kirk Mandy now promise that Zarlink will not lose money in
the first quarter. Shareholders have had to wait far too long to be satisfied
with that result.
Vote for Change
We suggest you calculate how much of your investment in Zarlink you have
lost under the current Board and CEO. Consider whether you trust the future of
your company to the same group who brought you the past six years of
disappointment and unfulfilled promises. We urge you to protect your interests
by voting for positive change at Zarlink using the BLUE form of proxy. And, to
be sure your voice is heard at the annual meeting, we ask you to vote today.
The Concerned Shareholders of Zarlink Semiconductor Inc.
(signed) (signed) (signed)
Scott Leckie Daniel Owen David Banks
Voting for Change
The Concerned Shareholders remind their fellow Zarlink shareholders:
- Your vote is very important to the future of your investment in
Zarlink. If, after reading the Concerned Shareholder Proxy Circular,
you agree that the Concerned Shareholder Nominees will better serve
your interests as a shareholder of Zarlink, please vote the BLUE form
of proxy distributed with the Concerned Shareholder Proxy Circular.
- You may vote the BLUE proxy for change even if you have previously
deposited a management proxy or other proxy. A timely delivered and
later-dated BLUE proxy automatically revokes any earlier one.
There is only a short time in which to make the needed change at Zarlink.
- In order to be deposited with Zarlink's registrar and transfer agent
in time to be used at the meeting, your BLUE proxy should reach
Kingsdale Shareholder Services Inc. before 5:00 p.m. (Eastern Time)
on Friday, July 18, 2008.
- Please fax only your BLUE proxy to 416-867-2271 or toll free:
1-866-545-5580. Hand delivered proxies should be returned to
Kingsdale at the Exchange Tower, 130 King Street West, Suite 2950,
P.O. Box 361, Toronto, Ontario, M5X 1E2.
- Non-registered shareholders are advised to refer to the information
under "General Proxy Information - Non-Registered Shareholders" in
the Concerned Shareholder Proxy Circular.
It's time for a change.
For new leadership. For a new direction.
For renewed shareholder value.
For further information:
For further information: The Concerned Shareholders of Zarlink
Semiconductor Inc., Scott Leckie, (416) 363-3399, www.yourzarlink.com