Tessera Technologies Inc. (TSRA) recently filed the following press release indicating the emergence of an activist investor seeking to replace half of the Board of Directors. Usually when an activist contacts the company, the company sits on the letter, forcing the activist to publicize its position via an addendum to its SC-13D. In this case, TSRA preempts that by giving an outline of the letter and then providing a detailed response.
Quote: TESSERA TECHNOLOGIES ISSUES STATEMENT REGARDING DIRECTOR NOMINATIONS
San Jose, Calif., Jan. 3, 2012 – Tessera Technologies, Inc. (Nasdaq: TSRA) (the “Company”) announced it has received a letter from Starboard Value and Opportunity Master Fund Ltd and its affiliates and director nominees (together “Starboard”).
In the letter Starboard stated it holds less than 1.3% of the shares outstanding and intends to nominate candidates to fill half of the positions on the Company’s Board of Directors. According to the letter, Starboard holds 622,916 shares of the Company, 621,916 of which it purchased in December 2011, and intends to nominate Messrs. Maury Austin, Peter A. Feld and Jeffery S. McCreary for election at the 2012 Annual Meeting of the Stockholders of Tessera Technologies, Inc. According to public filings, Starboard owns approximately 9.9% of MIPS Technologies, Inc., where Mr. Austin is the former CFO and Mr. McCreary is a board member.
The Company issued the following statement:
“The Board of Directors of the Company is single-mindedly focused on enhancing value for all stockholders. Since installing Bob Young as CEO a little more than six months ago, the Board has taken decisive steps to chart a new path for the Company that will capitalize on the significant growth opportunities that the Company uniquely enjoys. Our Micro-electronics business continues to generate strong cash flow that we are prudently re-investing in new packaging solutions and in patented technology in adjacent and other vertical markets. Our Digital Optics business is now pursuing a large, transformational market opportunity that will produce measurable results in the next twelve months, exploiting technology that is proven and disruptive, with a clear path to commercialization. The Company has the right Board and management team in place to execute on these opportunities and to deliver value for the Company’s stockholders.
We welcome an open and active dialogue with our stockholders. We regret that Starboard did not see fit to engage in dialogue with us prior to delivering its letter, but we look forward to the opportunity to engage in discussions with Starboard and all of our stockholders in the coming weeks. We know our stockholders need to understand the strategic plan and the concrete steps the Company is taking to execute on it. We are confident
that as our stockholders understand the plan and the pace on which we are moving to realize it, our stockholders will be as excited about the Company’s prospects as we are.”
In addition, the Company is filing with the Securities and Exchange Commission the following letter to stockholders from Robert A. Young, President and Chief Executive Officer of the Company:
As we close the books on 2011, we are preparing to take our next steps in 2012 toward the very large growth opportunities we see ahead.
Our strong momentum today stands in contrast to our position just a year ago. Last May, when it asked me to step in as CEO of Tessera Technologies, Inc. (the “Company”), our Board of Directors saw a pressing need to re-set the course for our two business units so each could more aggressively pursue a multi-billion dollar market opportunity.
Over the past year, the Board of Directors and I have:
Replaced more than half the senior management team, hiring new executives with the proven skills we need to drive our two businesses to the next level.
Added two new Directors, significantly broadening our highly qualified Board’s experience, expertise and contacts.
Retained a financial advisor to help refocus the Company and to finalize our strategies to address our emerging market opportunities.
Our operations performed strongly in 2011, generating cash from operating activities of $63.4 million in the first three quarters of the year. At the end of the third quarter, we had no debt and cash of $535.6 million – an increase of $60.6 million from December 2010. We have elected to prudently reinvest our cash in each of our business segments in order to address the large market opportunities at hand, out of the conviction that doing so will deliver superior returns to our stockholders.
Cash-Flow Generation: Micro-electronics
The driver of our cash flows – our Micro-electronics business – has been generating a non-GAAP operating profit margin of about 70% over the past three years, even after our investments in R&D programs and patent litigation. We passed important milestones in 2011 as we implemented our strategies to continue our growth over the horizon:
Our new executive team successfully renewed two large revenue-generating licenses held by Samsung and Hynix.
Our revitalized R&D team continued to create new generations of semiconductor packaging that will further improve the performance of integrated circuits. Much like our first packaging breakthrough, our latest technology enables high-speed chip performance in an even smaller form factor.
We laid the foundation for expanding our technology licensing expertise into new and adjacent markets, including vertical markets beyond our traditional semiconductor packaging focus.
Growth Opportunity: Digital Optics
It may surprise those who have tracked the success of our Micro-electronics business to learn that our largest growth opportunity today is in our Digital Optics business (formerly known as Imaging & Optics).
This business is positioned to disrupt the multi-billion dollar market for mobile camera modules – a fragmented market in which low-margin assemblers compete with similar designs and commoditized components. Our technologies will enable a new generation of feature-rich camera modules within several well established markets including mobile phones, our first target market.
The most bulky component in today’s mobile phones is the camera module. Some of today’s Android phones even feature a “bump” made necessary by the nearly obsolete technology now found in all mobile phone camera modules, built around magnetic coil technology that is over 100 years old and has reached its effective limits of miniaturization.
We will introduce camera modules based on silicon rather than magnetic coils to move the lenses for focusing and zoom. This breakthrough MEMS technology is disruptive because it obsoletes the magnetic coils in use today by enabling cameras that are thinner, much faster, have more accurate lens positioning, and use far less battery power. When combined with the other software and technologies that we have already have developed and marketed, it means better quality images and video from miniature mobile phone cameras. Our technologies will enable mobile phone cameras to perform as well as standalone digital still cameras and to compete with video cameras on quality. We are discussing our offerings with Tier One OEM manufacturers of wireless handsets, and expect to ship our game-changing products in late 2012.
In short, we have positioned our Digital Optics business with the right technologies and people to exploit a large and growing market that has yet to see the kind of transformative innovation that’s been common in other consumer electronics businesses.
The major milestones that you can expect this coming year:
First half of 2012: We will sign our first design win for the use of our transformational MEMS optical imaging technology in a new cell phone.
Second half of 2012: We will announce major steps toward high-volume manufacturing of devices using this MEMS technology.
We invite you to invest with us in this exciting opportunity – and to carefully watch our progress during the year ahead. As the Company’s largest individual stockholder, I look forward to executing our plans to drive a significant increase in the value of the Company. We appreciate your support.
Robert A. Young President and Chief Executive Officer Tessera Technologies, Inc.
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