Nierenberg Losing Patience with Electro Scientific (ESIO), May Nominate its Own Candidates to the Board

On January 22 ESIO issued a press release reaffirming its commitment to shareholder value and stating that it was considering various suggestions it had received. Since then, however, the company has announced nothing.

In response to that statement, we amended our Schedule 13D to indicate, among other things, that we were prepared to be patient while the Company evaluated our proposal, a similar proposal from its largest stockholder and other input it obtained. However, we have grown tired of waiting, particularly while ESIO’s share price declines. Therefore, if ESIO does not publicly commit to tangible and substantial actions to both improve ROE and upgrade the effectiveness of its financial communications, we may conclude that we have no alternative but to consider nominating our own candidates for election to ESIO’s board of directors, in opposition to the two incumbent outside directors up for re-election this year, as permitted in May 2007 under ESIO’s bylaws.

When we advocate "tangible and substantial" actions to boost ROE, specifically we are seeking ESIO’s commitment to repurchase at least 6,000,000 of its shares as soon as possible and an ongoing commitment to repurchase at least 1,000,000more shares annually from free cash flow, asset monetization, and cash reserves.We believe other ESIO shareholders would share this preference for a largere purchase, rather than the large special dividend, which we had originally suggested.

We view the company’s sluggish share price, its unacceptably low ROE, and its ineffectual financial communications as causes for shareholder concern and engagement. The thoughtfulness which ESIO has demonstrated recently in technology, product development, cost reduction, and sales and marketing does not seem to be replicated in the important areas of balance sheet management,financial strategy, and investor communications. Despite our high regard for ESIO’s CEO, our respect for members of the company’s board, and our enthusiasm for ESIO’s technology, products, competitive position, and organic growth prospects, we are frustrated that ESIO has failed to convert these business assets, and the company’s obvious financial assets, into higher ROE and a stronger share price by the kinds of actions advocated by its two largest shareholders.

We have been patient, supportive, and constructive for a long time, longer than many other professional investors might have been, out of respect for ESIO’s board and management and out of a desire not to cause unnecessary confrontation in the Portland business community in which we live and work. But time is running out and the time for action is now.

http://13dtracker.blogspot.com/