Does shareholder activism lead to company turnaround? There may not be a
clear-cut answer, but shareholder activists may be able to take some of the credit for Digital Equipment's (DEC)
focus on its core business and recent stock performance.
In June, shareholders held an informal meeting in an effort to come up with a viable
solution to Digital's continued losses and falling stock price. Their solutions centered on appointing new board members, a possible merger, and
focus on core businesses. Today, Digital sold its printer unit in what it called an effort to concentrate on its central operations.
"Certainly management is more sensitized [since the highly publicized
shareholder meeting]. Shareholders raised some valid concerns and
management has a responsibility to its shareholders, as well as to its
customers and its employees," said Louis Mazzucchelli, an analyst with
Gerald Klauer Mattison.
Digital's stock has gained about 33 percent since another unofficial
shareholders meeting in May, and has gained nearly 80 percent to 45 since
April when it bottomed out at 25 a share.
But Stephen Dube, an analyst with Wasserstein Perella Securities, said it
is unlikely that the sale of the unit is related to the shareholder
concerns, noting that it will not be that easy to soothe shareholders' worries. "The only
thing that will ease shareholders concerns is consistent earnings."
Digital is trying. In July, the company announced earnings of $124
million, or 75 cents per share, for the quarter, beating analyst estimates
compiled by First Call by 2 cents.
Bob Monks, a money manager at Lens
and a Digital shareholder said the sale of the printer business is a step in
the right direction. "But the company should focus its energy where it has
a future, and I worry that this might be a little too late. The company
lacks a sense of where it is going."
Digital, of course, disagrees.
Sarah Miller, a spokeswoman for DEC, said Digital's long-term strategy is
to focus Alpha microprocessors, x86 servers, workstations, personal
computers for business, semiconductors, storage, networking products,
software and services, and intranet and Internet offerings.
According to Mazzucchelli, today's sale of the company's Printing Systems Business unit
makes perfect sense toward the company's and investor's goal of focusing on
the core business.
But shedding one small business unit does not a turnaround make. Investors are still working on a plan to help the company. Monks said his
group spent a fair amount of time trying to develop a plan to increase
shareholder value. "But we are not technical people. There is value
there, so what we say is change the board.
Herbert Denton, president of Providence Capital, who organized the May
shareholder meeting said, "We have tried to do is send a wake-up call to
board of directors," noting that it is impossible to tell if their actions
had a positive or negative, if any at all on DEC's decisions.
"It's brutally simple?If you are going to be involved, do what ever it
takes to get the stock up, and we won."