Digirad Corporation Delivers Letter To PDI, Inc. Responding To PDI's Summary Rejection Of Digirad's Offer To Acquire Company

SUWANEE, Ga., Oct. 31, 2014 /PRNewswire/ -- Digirad Corporation (Nasdaq: DRAD) today announced that it has sent a letter to PDI, Inc. (Nasdaq: PDII), a healthcare commercialization services company, responding to PDI's summary rejection of Digirad's proposal to acquire the company. 

Digirad calls upon PDI to immediately engage in meaningful discussions regarding a transaction and to operate in the ordinary course of business and to not spend its cash, or take on additional debt, on acquisitions or other extraordinary transactions. Digirad believes that prior to committing to any such transaction, PDI's stockholders should have an opportunity to fully consider a transaction with Digirad. Furthermore, no acquisition or extraordinary transaction by PDI should be pursued without prior stockholder approvals. 

The full text of the letter follows:

October 31, 2014

Via Facsimile and Overnight Courier

Gerald P. Belle
Chairman of the Board
PDI, Inc.
Morris Corporate Center 1, Building A
300 Interpace Parkway
Parsippany, NJ 07054

Dear Mr. Belle:

Digirad Corporation ("Digirad") is in receipt of your letter dated October 29, 2014 summarily rejecting our proposal to acquire PDI, Inc. ("PDI") for a combination of cash and stock of Digirad. We were surprised, and frankly extremely disappointed, by your three-sentence response dismissing Digirad's proposal just hours after it had been received.

We do not believe it is possible for the PDI Board to have met and engaged in a meaningful, in depth discussion of the potential synergies, efficiencies and other benefits of combining our respective companies and the prospect of giving PDI stockholders immediate liquidity through the cash component of the purchase price in the few hours between Digirad's proposal and your response.  Did the PDI Board even educate itself as to who we are and review our public filings? Did the Board consult with its legal and financial advisors? Did the Board form a special committee to review our proposal? 

We question whether the PDI Board is acting in the best interests of all its stockholders, the true owners of PDI, or seeking to preserve the status quo to the detriment of PDI stockholders. By refusing to even engage in preliminary discussions with Digirad and take steps to explore the economic and strategic benefits of our proposal, the PDI Board is once again showing its disregard for stockholder rights and stockholder value by refusing to consider a potentially significant value-enhancing transaction with us. The PDI Board has also refused to return my calls to discuss our proposal. This refusal to speak demonstrates the PDI Board's unwillingness to represent the best interests of its stockholders, employees and customers. 

It is an exciting time for Digirad, a leading diagnostic solutions and healthcare services company traded on NASDAQ. Since the Board of Directors of Digirad was reconstituted and my appointment as Chairman in February 2013, we have executed on a new strategic plan, which has driven cash flow, reduced costs and aggressively returned capital to stockholders. Digirad has also increased its share buyback program and paid a $0.05 per share cash dividend to stockholders during each of the last 4 completed fiscal quarters. With the strong commitment of the new Board and management team to maximizing value for all stockholders, Digirad's total stockholder return is 150% during our tenure (from February 6, 2013 to October 29, 2014). We have also successfully completed two value-enhancing acquisitions during this time.  

The current Board of PDI, on the other hand, has overseen significant destruction of stockholder value as its financial performance has steadily deteriorated during the past five years.

• During the timeframe of the reconstituted Board's tenure at Digirad, the PDI share price has declined by 78% (from February 6, 2013 to October 29, 2014).  
• During the 1-year, 3-year and 5-year periods ended October 29, 2014, the PDI share price has declined by 69%, 75% and 67%, respectively.
• During 2009 through the second quarter of 2014, PDI has generated negative earnings of a cumulative $6.02 per share loss and has not had a single profitable year.
• PDI's gross margins have eroded from 30.5% in 2009 to 16.2% in 2013, and has only reported positive EBITDA in two of the past 5 years while showing a cumulative EBITDA loss of $12 million during this same period.

The track records of our respective companies speak for themselves. Digirad has prioritized increasing and returning value to its stockholders while PDI continues to spend its cash subsidizing money-losing businesses and making ill-advised acquisitions in new business areas outside its traditional business. The Digirad stock component of the consideration that would be paid under our proposal would give PDI stockholders the opportunity to exchange their current PDI investment into the stock of a newly combined company, which would allow them to participate in any upside from merging our two companies. The PDI Board has a fiduciary responsibility to its stockholders to engage with Digirad on a potential transaction that could substantially benefit its stockholders. In addition, the PDI Board has a duty to consider a potential merger with Digirad and to immediately cease its reckless acquisition strategy. This aggressive acquisition strategy involving the spending of a significant amount of PDI's cash, as well as adding new external financing, was announced during PDI's Q2 earnings call and led to an over 50% decline in PDI's share price since August 13, 2014.  Asserting that PDI is "not for sale," with limited consideration or thought, is an unacceptable response for a board that has presided over such a tremendous destruction of stockholder value.       

In addition to engaging in meaningful discussions with us immediately, we call upon the PDI Board to operate in the ordinary course of business and to not spend its cash, or take on additional debt, on acquisitions or other extraordinary transactions as intimated by management during the latest earnings call.  We believe prior to committing PDI to any new acquisition, PDI's stockholders should have an opportunity to fully consider a transaction with Digirad. Furthermore, no acquisition or extraordinary transaction by PDI should be pursued without prior PDI stockholder approvals. We hope to engage in meaningful discussions with you or PDI's representatives and explore ways we can have a mutually beneficial transaction. Please be aware, however, that we reiterate our intention to evaluate all our options in the unfortunate event the PDI Board refuses to engage with Digirad, including delivering an acquisition offer directly to PDI stockholders.   

About Digirad Corporation

Digirad delivers convenient, effective, and efficient diagnostic solutions on an as needed, when needed, and where needed basis. Digirad is one of the largest national providers of in-office nuclear cardiology and ultrasound imaging services, and also provides cardiac event monitoring services. These services are provided to physician practices, hospitals and imaging centers through its Diagnostic Services business. Digirad also sells medical diagnostic imaging systems, including solid-state gamma cameras, for nuclear cardiology and general nuclear medicine applications, as well as provides service on the products sold through its Diagnostic Imaging business. For more information, please visit www.digirad.com. Digirad® and Cardius® are registered trademarks of Digirad Corporation.

Forward-Looking Statements

This press release contains statements that are forward-looking statements as defined within the Private Securities Litigation Reform Act of 1995. Some of these forward-looking statements can be identified by the use of forward-looking words such as "believes," "expects," "may," "will," "should," "seek," "approximately," "intends," "plans," "estimates," or "anticipates," or the negative of those words or other comparable terminology, or in specific statements such as the Company's ability to deliver value to customers, the ability to grow and generate positive cash flow, the ability to execute on restructuring activities, and ability to successfully execute acquisitions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are detailed in Digirad's filings with the U.S. Securities and Exchange Commission, including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports. Readers are cautioned to not place undue reliance on these forward-looking statements, which speak only as of the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement, and Digirad undertakes no obligation to revise or update the forward-looking statements contained herein.

For more information contact:
Jeffry Keyes
Chief Financial Officer
858-726-1600
ir@digirad.com

SOURCE Digirad Corporation