Engaged Capital, LLC (“Engaged Capital”), an investment firm specializing in small and mid-cap North American equities and beneficial owner of approximately 5.1 percent of the common stock of AeroVironment, Inc. (“AeroVironment” or the “Company”) (NASDAQ:AVAV), today sent a letter to the Company’s Board of Directors (the “Board”), included below and also filed today with an amendment to its Schedule 13-D.
In its letter, Engaged Capital notes the Board’s behavior since receiving its director nomination notice in June reflects a disregard for independent shareholders and obliviousness to the responsibilities of public company directors. The Board’s self-serving actions have led Engaged Capital to conclude that a single Board seat is not adequate to address the concerns of AVAV’s independent shareholders.
Rather than obtaining only one Board seat, Engaged Capital believes it can be more effective holding the Board accountable over the next twelve months by freely communicating with shareholders, analysts, and financial advisors. Accordingly, Engaged Capital has decided to withdraw its nomination of a single candidate for election at this year’s annual meeting. In its letter, Engaged Capital noted its decision to withhold votes for all three director nominees at the Company’s upcoming annual meeting as Engaged Capital does not consider these candidates to be independent.
Glenn Welling, Principal and Chief Investment Officer of Engaged Capital, commented, “We are disappointed AeroVironment’s Board has chosen to continually thwart our efforts to work constructively to correct the Company’s valuation discount. Boards should work collaboratively with their largest shareholders and we have attempted, repeatedly, to convince this Board of the same. However, this Board’s indifference for independent shareholders demonstrates exactly why change is necessary to prevent further leakage of value. We are committed to exercising all of our rights on behalf of shareholders to challenge the status quo and eliminate the impediments that have deprived AVAV shareholders of the full value of this great company.”
Engaged Capital’s Schedule 13-D filing can be found in its entirety here:
Full letter text:
September 11, 2013
Members of the Board of Directors
181 W. Huntington Drive, Suite 202
Monrovia, CA 91016
Dear Members of the Board,
We are extremely disappointed with the way our interactions have progressed over the past several months. Since receiving our nomination notice in June, the decisions of the board of directors (the “Board”) of AeroVironment, Inc. (“AVAV” or the “Company”) have visibly reaffirmed the Board’s disregard for independent shareholders and obliviousness to the responsibilities of public company directors. As one of AVAV’s largest shareholders, it is frustrating to witness the Board’s lack of interest in challenging the status quo or desire to explore new strategies. The Board’s “circle the wagons” response to our involvement is particularly troubling given the fact that AVAV has created no shareholder value since the Company’s IPO over six years ago.
As with all of our investments, our intent since first taking a position in AVAV almost a year ago has been to work constructively with the Board and management to maximize shareholder value. However, our recent experience with the incumbent Board has led us to doubt that this is a possibility. Barring a change in the Board’s position, we believe more than one Board seat will be needed to adequately address the concerns of AVAV’s independent shareholders. Accordingly, we are withdrawing our nomination for the election of a single candidate at this year’s annual meeting. We have concluded that, rather than having one Board seat, we can be more effective in holding this Board accountable over the next twelve months by freely communicating with shareholders, analysts, advisors, and the financial community at large.
We remain committed to improving the corporate governance profile of the Company for the benefit of all shareholders. The recent nominations of Messrs. Burbage and Muller to the Board are a step in the wrong direction. Given the close ties we believe they have to existing directors, combined with the candidacy of Mr. Holland, an acknowledged insider due to the consulting fees he earns from the Company, Engaged Capital intends to withhold its votes with respect to the election of all three of this year’s nominees. Further, we reiterate our call for the Board to proactively begin the declassification process, rather than wait for a shareholder proposal, which is inevitable.
This process has been needlessly difficult for both parties given that our interests should be aligned. We urge the Board and management to broaden their perspective and implement our suggestions for shareholder value creation in order to avoid a contested situation next year. We are resolute in our determination to ensure this Board acts in the best interest of shareholders such that the Company’s equity valuation finally reflects the great business that we collectively own. We look forward to working constructively with you towards that end over the next twelve months.
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 under-valued 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.
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