Management Turnover as Change Agent

Wednesday, September 24, 2008

Activist Shareholders Force Out Unisys CEO

Yesterday the board of directors of Unisys UIS (NYSE), the computer services firm, announced that Joseph W. McGrath, the company's president and CEO, had agreed to step down by year's end.  McGrath had been in his position for three years.  Unisys and particularly McGrath have been under intense pressure from shareholders to make major changes at the firm.  The company has been languishing for sometime now and has seen a decline in revenue over the last few years.  Special pressure has been applied by MMI Investments LLP, an activist shareholder who owns over 9% of the firm.  Back in January of 2008, MMI wrote an angry letter to Unisys management.  A portion of the letter stated,
...we are mystified by management and the board’s inaction in the face of Unisys’ ruinous stock price performance over the past year. We believe Wall Street’s utter rejection of Unisys stock is indicative that the restructuring benefits are not enough to correct Unisys’ dramatic undervaluation. We believe that Unisys has serious flaws in its strategic configuration, which impair stockholder value due to the taint of the secularly declining Technology business and obscure market recognition of the highly-valuable U.S. Government business. Therefore we believe it is crucial that Unisys move immediately to announce the engagement of an independent, qualified investment bank to perform a review of all available strategic alternatives, with a particular focus on the potential realization of the U.S. Government business through a sale, tax-free spin-off or subsidiary IPO. This assignment should include undertaking the prompt execution of whichever transaction or transactions will lead to maximizing stockholder value.
Management at Unisys initially resisted MMI's efforts but in May after growing pressure from shareholders and a declining stock value the company was forced to relent a bit.  Unisys gave MMI's president , Clay Lifflander, a board seat and as requested by MMI's January letter the company retained Goldman Sachs to help recommend strategic options for the firm.  

The steps taken in May ultimately were not sufficient to make the changes in the company as requested by MMI and other shareholders.  MMI has continued to place pressure on Unisys to to spin out its government outsourcing division as a new company.  The activists finally got McGrath's head.  The change at the top is a positive for the firm but we will have to see who they end up hiring and what he/she intend to do with the firm.

For more:

No comments: