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Gaming Partners International: An Activist Emerges
Posted by: Frank Voisin
Date: February 2, 2012 05:56AM
Stocks Discussed: GPIC
I have written about Gaming Partners International (GPIC
) several times before
, and although I do not currently hold a position I thought it would be worth providing an update on some interesting news. Enclave Asset Management LLC recently filed an SC-13D announcing
a stake in the company and its intentions to push for change, with detailed complaints about the issues they see in the company’s management. I have added links to each exhibit which contains the various letters between the company and Enclave. Note also that I have added my own emphasis to the key points.
The Reporting Persons have agreed to act in concert with the common purpose of assessing whether the Issuer’s management and board of directors are currently acting in the best interests of the shareholders and to potentially develop and recommend various courses of action for consideration by the Issuer’s management and board of directors that the Reporting Persons believe will maximize shareholder values. A copy of the written Joint Filing Agreement among the Reporting Persons is attached as Exhibit 1.
As background, Jeffrey Gerstel, individually and on behalf of Enclave Asset Management LLC, has sent numerous written letters and electronic communications to various members of management and the board of directors of the Issuer.
See, for example, the letter to the board of directors of the Issuer dated July 8, 2011 attached here to as Exhibit 2. In these various communications, Mr. Gerstel has expressed his opinion that:
1. Management has failed to develop and/or implement effective strategies to exploit GPIC’s proprietary technology and to materially grow GPIC’s business and revenue;
2. Management has not prudently deployed, utilized or re-invested a cash surplus of approximately $25 million (as reflected in its quarterly report for the period ended September 30, 2011);
3. Management has engaged in employment and compensation practices that constitute conflicts of interest and/or self-dealing; and
4. Management has not timely disclosed certain material contracts and related party transactions or relationships.
The legitimate concerns expressed in Mr. Gerstel’s communications to management and the board of directors have generally been ignored or side-stepped. For example, following Mr. Gerstel’s July 8. 2011 letter, the board of directors in a letter dated July 18, 2011 and attached hereto as Exhibit 3, responded in a superficial, generic and dismissive manner to the various and detailed concerns expressed by Mr. Gerstel. As subterfuge for an apparent desire to avoid accountability to a concerned shareholder, the board of directors mistakenly inferred that insider trading rules prevented them from being fully responsive. This was baffling to Mr. Gerstel since his letter was not an attempt to illicit material, non-public information from the board, but instead was a request for explanations or embellishments regarding previously disclosed corporate matters.
On January 17, 2012, Enclave Asset Management, LLC, Jeffrey Gerstel, Jesse Gerstel, Eileen Gerstel and Warren Spivak, through counsel retained by them, sent a letter to the Board of Directors demanding that the Board immediately terminate the employment, for cause, of CEO Gregory Gronau and CFO Gerald Koslow and that GPIC commence a lawsuit against them. A copy of the January 17th letter is attached as Exhibit 4. The letter also outlined a series of acts that, in the belief of the Reporting Persons, constitute further acts of incompetence, gross mismanagement and even self-dealing. More specifically, the Reporting Persons contend that:
1. Management has caused GPIC to engage in a share repurchase program that serves no legitimate corporate purpose.
2. Management has engaged in self-dealing and nepotism by hiring Mr. Gronau’s wife to provide real estate consulting services to the Company and Mr. Thieffry’s son in a significant accounting role;
3. With little or no justification, Management has terminated and compelled the resignation of highly performing personnel, such as Christophe Leroux (leading chip salesman) and Remi Nicolas (accountant for GPI SAS), and has replaced them with less experienced and incompetent employees; and
4. Management has failed to retain competent technology and engineering personnel and has been derelict in the management of its RFID technology license agreement, including by missing deadlines and opportunities for cooperation.
The Reporting Persons received a response to their January 17th letter from counsel to GPIC on January 27, 2012. The letter did not indicate that independent counsel had been retained by the Board to evaluate the concerns expressed by the Reporting Persons, yet was critical and dismissive of those concerns. A copy of the January 27th letter is attached hereto as Exhibit 5.
On February 1, 2012, counsel to the Reporting Persons sent a reply letter to GPIC’s counsel, highlighting the need for independent counsel to the Board, reiterating its concerns concerning the management of the Company and its disclosures and demanding that the Company implement procedures to preserve electronic communications, data and information. A copy of the February 1st letter is attached as Exhibit 6.
I definitely agree with complaints 1 and 2 but I disagree with Enclave’s issue with the corporate share repurchases. I wish Enclave well in forcing necessary change (though I doubt they will be successful, given that 61% of the company is held by insiders).
What do you think of this letter?Author Disclosure: