By Gail Nickel-Kailing October 18, 2004 -- News of dissident shareholders and their action to remove the Creo board of directors, including CEO Amos Michelson, has been top of the page for the Globe and Mail as well as News. Following is a brief “literature review” of current stories and comments from a number of financial analysts who keep close tabs on Creo. Speaking to, Amos Michelson said he had no intention of stepping down in face of the campaign to remove him and the company’s board by a group of dissatisfied shareholders. “Of course not,” Amos said when asked if he plans to resign. In a press release and an SEC filing dated October 15, Creo reiterated its strategic alternatives. In July 2004, Creo’s board of directors established a committee of independent directors to review strategic alternatives with the objective of enhancing shareholder value. According to the release, the committee, management, and its advisors are charged with the evaluation of the company’s business plan and the consideration of a full range of strategic options, including acquisitions, alliances with strategic partners, resale arrangements, business combinations, and the sale of all or a portion of the company’s assets. The company has retained Merrill Lynch to assist in this process. Michelson stated, “Our board and the management remain confident that given the strategic direction we have established and the initiatives we announced on October 6, we will provide increasing earnings. Nevertheless, Creo’s board and management are evaluating all alternatives for maximizing shareholder value. Any action pursued by the company will be in the best interests of all shareholders.” Derek DeCloet, of, concentrated on the potential success of the proxy fight. He described it as a longshot. Proxy fights are never easy to win, and the dissident group has just about 6 percent of the stock. There are few large shareholders; Capital Research and Management also known as American Funds) has about 8 percent, and British Columbia’s public sector pension fund holds over 5 percent. For the Goodwood-Burton group to succeed it will have to pull together a coalition of many smaller institutions. If there is enough anger and frustration to fuel them, even proxy fights that start small can gain momentum quickly. The issues that have analysts and investors looking askance include poor balance sheet management. Something that angered some investors was the fact that Creo declined to sell new shares when the stock price shot up to $75 in 2000, yet issued stock this past March at $13.39. DeCloet also commented on Creo’s weak disclosure. The company reports revenue for each of its three major segments, yet offers no information on how profitable they are, giving investors little hard information on which to judge Michelson’s diversification. Analysts Speak included comments from CIBC World Markets analyst, Todd Coupland, who suggested that Creo will be forced to accelerate efforts to improve its performance whether or not the dissidents succeed in ousting current management. “If successful, Burton’s group will quickly move to remove the cost base,” Coupland said in a research note. “If not, Creo’s current team has additional motivation to move aggressively.” Jeff Rath, analyst at Canaccord Capital, as reported by News, has been outspoken and has called for significant restructuring at Creo for some time. He believes that Burton and the other dissident shareholders have an early upper hand. “We think many Creo shareholders are still below cost on their shares, and the majority will welcome the upcoming battle,” said Rath in a research note dated October 13. He also compared Creo to Leitch Technology Corp, which also saw a dissident group of shareholders try to take control of the company last year. The dissidents failed by a slim margin, but new management was installed nevertheless. Scotia Capitol’s Paul Steep detailed the implications of the action. According to Steep, “We anticipate the shareholder dispute process will last until February 2005, causing ongoing speculative volatility in Creo’s stock price.” Because there is not likely to be a quick resolution to the proposal and the issue is likely to be dealt with at Creo’s annual general meeting to be held in February, the process will be a distraction. Daily operations may be affected, which could impact revenue in the short term due to management distraction and customer concern about Creo’s long-term direction. Steep commented in his research notes that shareholder proposals have a low success rate. In 2003, 15% of the 1,082 shareholder proposals voted on at company annual meetings in the US were successfully passed, according to the Investor Responsibility Research Center. He noted that some investors may be reluctant to vote in favor of the dissident shareholder group even if they are in general agreement that the action needs to be taken. To generate needed support, the group will need to detail it’s proposed operating strategy for Creo, the new board, and how it expects to increase shareholder value. Proxy Vote Process and Timeline The SEC Schedule 13D asks Creo’s board of directors and CEO to resign, but does not give a response deadline. If the shareholder group wants speed up the process, it can request a special shareholder’s meeting to vote on the matter. The board of directors has 21 calendar days to either accept or reject the request. If the board accepts the request to call a special meeting, the normal process for organizing a shareholder meeting must be followed with the issuance of a proxy circular. The process can take close to 60 days. If the board rejects the request, any member of the dissident shareholder group may call a special meeting of shareholders. The dissident group must deliver a proxy circular to all shareholders in advance of holding the special meeting. Because there has been no deadline established by the dissident group, and because there are considerable savings to result from “piggybacking” on the annual meeting, it is expected the vote will be held in February 2005. To have the resolution included in the annual meeting proxy circular, the dissident group must submit it by November 19, 90 days before the anniversary of last year’s annual meeting. Creo’s board of directors can avoid a special shareholder’s meeting, if it gives notice of its annual meeting prior to receiving a request for a special meeting. The annual meeting proxy circular agenda, however, must consider the shareholder group’s request.