Dallas-based private investment firm Park City Capital LLC today filed a proxy statement with the SEC indicating it intends to elect two of its own directors to the board of Milwaukee-based ARI Network Services Inc. at the company’s January 5 annual meeting.
The activist shareholder, which owns 1 million shares of ARI stock, opposes the six-member ARI board’s director nominations, William Mortimore and Robert Newell IV. It describes Mortimore as having a “troubling track record” because a company that he founded was charged by the SEC with a “massive multi-year accounting fraud.”
Mortimore founded medical software developer Merge Healthcare Inc. in 1987 and served as its president, chief executive officer and then chairman and chief strategist until 2006.
After beginning its investigation in 2006, a 2009 SEC complaint charged Merge with record-keeping violations and charged two of its former executives, Richard Linden and Scott Veech, with accounting fraud.
Mortimore currently serves as chief executive officer of Milwaukee startup Keystone Insights Inc., dba Project Foundry.
Park City has nominated John M. Mueller and Michael J. Fox as director candidates, and has sent a letter to shareholders urging them to vote for the pair, instead of for the board’s nominees.
“We have engaged in discussions with ARI, and provided it with our analysis, regarding a potential sale of the company over the past two years,” Park City said in a proxy statement Monday. “We do not believe that the ARI board and management have genuinely considered a sale of the company during that time. We believe strongly that the ARI board would benefit greatly from the addition of two new board members who are experienced in sale transactions and would seek to ensure that the ARI board fairly and properly considers all potential strategic alternatives.”
“The company is worth a lot more than what it’s trading at,” said Fox, chief executive officer of Park City, when asked by BizTimes about the reason for the proxy fight. “It’s trading at a significant discount to what its peers are trading. I think the acquisitions that they’re making are a lot smaller than the acquisitions they could be making if they were owned privately.”
“I think there is a significant number of private equity firms that are interested in acquiring a company like ARI,” he continued. “As a publicly traded company, you have to look a lot more on quarterly results and there’s a limit to how much leverage you can use and you have to focus a lot more on near-term margin.”
ARI Network Services earlier this month paid $10.3 million to acquire Weston, Florida-based car dealership sales software developer Auction123.
According to proxy soliciting materials submitted by ARI on Monday, Park City acquired about 1 million shares of ARI common stock in late 2014, and holds 5.7 percent of the outstanding shares in the company. Since that time, the company management has met with Park City 10 times, ARI said.
“In each of these conversations, we have carefully listened and considered Park City’s position and input with respect to the direction of (ARI),” ARI stated.
ARI evaluated Park City’s candidates following a private request from the company, and found them to have limited public, SaaS and software company board experience, as well as other factors it felt were deficient. The company also pointed out the poor performance of two other public companies at which Park City has placed directors.
“We question Park City’s choice of nominees to replace the highly-qualified, experienced and valued members of your board, who have played an important role in the success of (ARI) to date,” ARI told shareholders in its proxy soliciting materials. “We do not believe that either of Park City’s proposed nominees would bring to the board any relevant experience, skills or competencies not already present among the current board. We also do not believe that either of Park City’s nominees would help advance our strategic plan to drive the creation of long-term shareholder value.”
ARI Network Services management declined to comment about today’s filing. The company provides sales software and marketing tools for dealers, distributors and manufacturers.
Waukesha-based Telkonet Inc., Brown Deer-based Bank Mutual Corp. and Waukesha-based CIB Marine Bancshares Inc. also have been targeted by activist investors this year. Telkonet’s shareholder succeeded in electing three of his own directors.