Loeb's Letter Writing Calls For CEOs To Step Down
Dan Loeb, the outspoken partner of Third Point Management Company, is calling for the resignation of chief executive officers of two companies in which his hedge fund has stakes.
Loeb, who has sent numerous letters to CEOs and investors, including a harsh swipe at Wilbur Ross, sent out two letters that detail financial, and non-financial activities.
In the letter to Star Gas, Loeb accused Sevin of mismanagement. "A review of your record reveals years of value destruction and strategic blunders which have led us to dub you one of the most dangerous and incompetent executives in America," Loeb wrote. "It is time for you to step down from your role as ceo and director so that you can do what you do best: retreat to your waterfront mansion in the Hamptons where you can play tennis and hobnob with your fellow socialites."
Loeb notes that on Dec. 17, Star Gas closed on a $260 million working capital facility from J.P. Morgan. As of Dec. 31, the company was already in violation of its fixed charge coverage ratio of 1.1 times to 1 times. As a result, the company has been forced to use $40 million of the $143.5 million in excess proceeds from its propane business sale for working capital purposes in order to maintain minimum availability on the working capital facility of $25 million to prevent a violation from occurring under the credit agreement. "Clearly, J.P. Morgan did not expect EBITDA of $0 million (before non-recurring items) for the quarter ending December 31, 2004 given that the deal closed December 17, 2004," the letter states.
Loeb's letter to Salton's Dreimann was no less scathing. "We have seen the share rise briefly in the mistaken belief that the company would successfully restructure its debt burden, and fall to an all-time low for this century of $3.44. We have seen the company's corporate [and subordinated debt] ratings downgraded in November…all of which suggests that the company is on financial life support."
Loeb said the letters were justified because the companies were not responsive to his inquiries. Ami Trauber, cfo of Star Gas, refuted this notion. Loeb's inquiries were often regarding future plans for restructuring and other details that could not be given to public shareholders, Trauber said. A Salton spokesman also said the company had spoken to Loeb on numerous occasions. He added that Loeb has a "history of writing aggressive and bombastic letters," and his letter was filled with numerous inaccuracies and that "the company does not intend to refute each of his assertions."