Dissidents Propose Contradictory and Ill-Conceived Strategy for Creo
Press release from the issuing company
VANCOUVER, British Columbia--Jan. 18, 2005-- The board of directors of Creo Inc. announced today that it is reviewing a dissident proxy circular filed late yesterday with Canadian securities regulators by a small group of dissident shareholders, primarily Goodwood Inc. and Burton Capital Management, LLC.
Based upon its initial review, the board believes that the dissidents have put forward a highly speculative and risky proposal for the future of Creo, which is based on a number of selective omissions, misconstrued facts and distortions. The board reaffirms its recommendation that shareholders vote in favor of the Creo slate of director nominees at the annual and special meeting of shareholders scheduled for February 10, 2005. Shareholders should use the BLUE form of proxy (bearing the Creo logo) and discard any proxy received from the dissidents.
The board believes that the dissidents' proposed "change of direction" would lead to a reversal of Creo's many achievements, including its increased revenues and profitability. The dissidents' proposal represents an ill-conceived and high-risk approach that would not only jeopardize the future of Creo, without offering any compensation to shareholders, but is also likely to destroy Creo's reputation as a world leader in its business. The misguided strategy presented in the dissidents' circular, if implemented, would likely result in immediate and long-lasting damage to shareholder value.
While the board intends to issue a comprehensive analysis of the dissidents' circular shortly, it believes that several of the assertions made by the dissidents are misleading and deserve immediate attention:
DISSIDENT ASSERTION: Creo needs to "refocus" its business.
FACT: Creo's prepress and imaging solutions businesses - which the dissidents themselves define as "core" - currently generate over 98 percent of Creo's revenues and are the focus of 95 percent of the company's research and development ("R&D") efforts. Furthermore, all of Creo's businesses are regularly evaluated on their own performance metrics.
The contradictory proposals from the dissidents contend that Creo should reduce the number of products offered while simultaneously increasing the breadth of prepress solutions "for all segments of the market". The dissidents further demonstrate their lack of understanding of the company's products and customers when they erroneously contend that Creo is limited to "one type of customer and technology".
DISSIDENT ASSERTION: Creo can increase revenue and market share by "refocusing" and "realigning the sales force" and reducing prices.
FACT: Creo's salespeople are completely focused on the company's core business. Like most of its competitors, Creo relies mainly on direct sales channels in the major economies of the world and uses indirect channels in most other regions and for lower cost and lower volume products. The resulting mix is an effective distribution method for Creo's computer-to-plate solutions as it allows the company's specifically trained sales force to sell the competitive differentiation of its products. Creo believes its current mix of direct and indirect sales channels is the right combination to meet its customers' existing needs and, in anticipation of future market and sales trends, is working to build additional partnerships and indirect channel representation around the world.
Furthermore, the dissidents' claim that reducing prices will increase market share reflects their poor understanding of the dynamics of Creo's marketplace and the capital equipment business in general. Arbitrary price reductions would likely prompt the competition to follow suit and would result in reduced profit margins and no gain of market share.
DISSIDENT ASSERTION: Creo needs to "rethink the digital media strategy" and "minimize future capital expenditures by focusing on alternative growth strategies".
FACT: Since launching its digital plate strategy in the fall of 2003, Creo has transformed its business to become a complete prepress systems provider and is now, after little over a year, the world's fourth largest digital plate vendor. In fiscal 2004, the company's new digital plate business generated an annualized revenue run rate of nearly US$65 million by the end of its first year and grew Creo's consumables revenue by 62 percent, with more than half of the consumables revenue and all of the consumables revenue growth coming from plates.
The dissidents' suggestion that an alternative approach is needed, including the possibility of entering into "joint ventures with larger and established digital plate makers," demonstrates the dissidents' fundamental misconceptions about the importance of Creo's current digital plate strategy to its continued profit goals and the dynamics of the digital plate market.
DISSIDENT ASSERTION: Creo can simultaneously reduce R&D expenditures and sales costs, while expanding its sales and continuing to meet the needs of its customers.
FACT: These are mutually exclusive and contradictory proposals that underscore the dissidents' lack of knowledge about Creo's products and customers. The dissidents' proposal to abruptly reduce R&D to six to eight percent means the elimination of close to 50 percent of Creo's R&D programs. The board believes such a reduction will result immediately in a loss of customer loyalty and sales people. This would likely trigger a downward spiral in market share, prices and profitability and would drive the need for further cuts which would not make up for the reduction in profit.
The company's current business plan is the optimal approach for achieving Creo's sustainable growth objectives and enhancing shareholder value without sacrificing either short- or long-term profitability and growth targets. Creo's management team has outlined a plan to reduce its R&D expenses as a percentage of revenue in a controlled manner - to lower than 12 percent in 2005 and nine percent over the next two years - as the company's needs for consumables R&D fall in line with industry norms.
DISSIDENT ASSERTION: The dissidents' proposed slate of director nominees and management candidates are the right leadership team for Creo.
FACT: The highly touted, "wide-ranging" business career of Robert Burton, Sr., the dissidents' proposed chairman and CEO, includes no experience in managing high-technology or capital equipment companies such as Creo. Moreover the dissidents have not identified any senior managers with relevant experience managing high-technology or capital equipment companies.
With respect to the dissidents' proposed slate of director nominees, their combined lack of relevant experience, qualifications and credentials further reinforces the board's deep skepticism about the nominees' ability to direct the management of the company and create the value the dissidents claim they can deliver for Creo shareholders.
CONCLUSION: For all of these reasons and others, the board believes that the dissidents' proposed "change of direction" would lead to a reversal of Creo's many hard-won achievements, including the recent transformation of its business and its resulting increased revenues and profitability. The dissidents' proposal represents little more than an ill-conceived and high-risk gamble that puts the future of Creo at risk without offering any compensation to shareholders.
Vote FOR Creo's Slate of Director Nominees
The board of directors of Creo recommends that shareholders:
carefully review the Creo management proxy circular;
vote FOR Creo's slate of director nominees using the BLUE form of proxy included with the Creo circular; and
discard any proxy materials they receive from the dissidents.
Shareholders with questions or requiring assistance in voting their BLUE form of proxy can contact the firm assisting Creo in the solicitation of proxies - Georgeson Shareholder at +1-877-288-9604.
The complete Creo management proxy circular and other related materials, including statements from customers in support of the current management and board, can be accessed at www.creo.com/shareholdervalue.
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