October 14, 2004 -- (WhatTheyThink.com Exclusive by Senior Editor, Gail Nickel-Kailing) -- Just one week after announcing a program to reduce costs by about $24 million, Creo faces a move by a group of investors to remove the current Board of Directors and Amos Michelson, Creo CEO. A shareholder group holding just under 6% (3,284,698) of outstanding shares wants to replace Michelson with Robert G. Burton, Sr., former Chairman, President, and CEO of both Moore Corporation Limited and World Color Press, Inc. Why is this group trying to remove Michelson? Poor share price performance and missed financial targets have caused Burton Capital Management and a small group of other investors, to lose confidence in Creo’s Board of Directors and CEO. The shareholder group also disagrees with the company’s operating strategy and believes that Creo has made a number of poor capital allocation decisions. As a result, this group intends to secure control of the company’s Board of Directors and cause Michelson to resign or remove him. While the intent is to persuade the Board of Directors, including the CEO, to resign, the shareholder group is ready to launch a public proxy contest to remove the Board and dismiss Michelson. Proxy contests can be extended processes, and the HP/Compaq merger of several years ago included a particularly vicious and long battle. Who are the players? The "reporting persons" who filed the SEC Form SC 13D, dated October 12, 2004, are: - Management and employees of Burton Capital Management, LLC, a Delaware limited liability company - Robert G. Burton, Sr., sole managing member, Robert G. Burton, Jr., President, and employees Michael G. Burton, Gina Zambrana, and Donald Zegzdryn. - Independent investors/consultants - Brendan Tobin, Colin Christ, and Thomas Oliva - Management of Ontario Inc., an Ontario corporation - Peter H. Puccetti, Chairman and Chief Investment Officer, and J. Cameron MacDonald, CEO - Robert T. Kittle, Partner, of Goodwood Inc., an Ontario corporation, and its funds and subsidiary - Goodwood Fund, a Canadian mutual fund trust, Goodwood Capital Fund, a Canadian mutual fund trust, Arrow Goodwood Fund, a Canadian mutual fund trust, Goodwood Fund 2.0 Ltd., a Cayman Islands limited liability company, and KBSH Goodwood Canadian Long/Short Fund, a Canadian mutual fund trust. Why Robert Burton, Sr.? Believing that Burton has returned three major companies to profitability, and that he possesses the skills and ability to do the same for Creo, the shareholder group intends to make him Creo’s Chairman and CEO. From December 2000 through December 2002, Burton was Chairman, President, and CEO of Moore Corporation Limited, generating over US$2.0 billion revenue in fiscal 2002. Burton was also Chairman, President, and CEO of Word Color Press, Inc., also a large commercial printing company generating more than US$2.3 billion for fiscal 1998. Prior to leading World Color, Burton held a series of senior executive positions at Capital Cities/ABC, including President of ABC Publishing, where he was instrumental in turning its operations from a loss to a major profit contributor. Amos Michelson’s challenge On October 6th, Creo announced a cost reduction program that will eliminate over 200 positions and reduce expenses by approximately $24 million. At the same time Michelson confirmed the company’s strategic direction. "We are committed to building shareholder value and profitability from our core business and through the execution of the digital media strategy announced a year ago," said Michelson. "We have systematically examined all parts of the business for both cost and contribution. The result is a set of initiatives that will deliver increasing earnings through fiscal 2005." He also stated, "More importantly, we are committed to do what is necessary to deliver on the bottom line. The measures announced today will allow us to achieve quarterly earnings before tax of at least eight percent of revenue by the fiscal fourth quarter of 2005." Burton and the shareholder group have voiced their vote of no confidence in the ability of the Creo Board of Directors to do that. Recent Speculation Speculation of dissatisfaction with management surfaced recently when WhatTheyThink.com commentator Andy Tribute wrote an article entitled "Creo: A Critical Assessment". Tribute opined that the financial community was growing impatient with management and that a change was in order. The article included a quote that was published recently by Jeff Rath of Canaccord Capital. Rath actually recommended the purchase of shares because he believed there was a possibility of a change in management. Tribute wrote the following: "Mr. Rath suggests Creo could be facing a similar situation (removal of current management) if it doesn't show a turnaround in its business or if it doesn't cut costs soon. The company's cost structure was built on a turnaround in the printing market and now that the turnaround is here, Creo isn't showing the benefits yet. Creo's insiders control only (6%) of the stock, so there's lots of room for shareholders to exert their will. According to Rath, "Our belief is that Creo's under performance in a recovering macro environment is making the company increasingly vulnerable to an external catalyst (i.e. shareholder activity to change management) or an acquisition by a larger industry player if no progress is delivered in the near term six to 12 months." Premium Access Members at WTT can read the complete August article by Andy Tribute here: http://members.whattheythink.com/home/tribute15.cfm Also see Creo’s response to Andy’s commentary: http://members.whattheythink.com/expertrow/creoresponse.cfm At press time, Creo had not issued a statement. WhatTheyThink.com will continue to follow the developments as they evolve; watch for more information as it becomes available. Reach WTT Senior Editor Gail Nickel-Kailing at [email protected]