, Nov. 17, 2010
/PRNewswire/ -- Ramius Value and Opportunity Advisors LLC, a subsidiary of Ramius LLC (collectively, "Ramius"), today reported a 12% ownership stake in SurModics, Inc. (the "Company") (Nasdaq: SRDX) and disclosed that it delivered a letter to the SurModics Board of Directors. In the letter, Ramius cites the long-term underperformance of the Company's business and stock price. Ramius also announced today it has nominated three highly qualified director nominees for election at the Company's 2011 Annual Meeting.
Ramius further expressed in the letter that it believes a negotiated resolution that results in a mutually agreeable, reconstituted Board is in the best interests of the Company's shareholders. To that end, Ramius stated its belief that its proposed nominees have the necessary experience and desire to assist the Company in promptly determining the appropriate strategy to address the long-term underperformance of the Company's business and stock price.
The full text of the letter follows:
To the Board of Directors:
As reported this morning in a 13D filing with the Securities and Exchange Commission, Ramius Value and Opportunity Advisors LLC, a subsidiary of Ramius LLC, and certain of its affiliates (collectively, "Ramius") owns approximately 12.0% of the shares outstanding of SurModics, Inc. ("SurModics" or the "Company"), making us the Company's largest shareholder. On November 10, 2010, we nominated three directors for election at the Company's 2011 Annual Meeting (the "Meeting"). These nominees are highly qualified and stand ready to assist the Company in promptly determining the appropriate strategy to address the long-term underperformance of SurModics' business and stock price.
SurModics stock price has materially underperformed the market. As shown in the table below, SurModics has declined approximately 65%, 83%, and 79% in the last one-, three-, and five-year periods, respectively.
Russell 2000 Index
We believe this decline is, in large part, due to continued poor operating performance driven by failed growth investments, failed acquisitions, and excessive spending. As shown in the table below, from fiscal year 2006 to 2010 total revenue was flat while SG&A expense grew by 85.8%. We estimate that non-customer R&D expense also grew by 15.3% during that time. In total, the Company's operating expenses grew by 79.8% from fiscal year 2006 to 2010 while revenue flat-lined. As a result, adjusted operating profit declined by 83.5%.
Historical Operating Performance
Fiscal year ended September 30,
Trial Operating Expenses
Adjusted Operating Profit
Note: Revenue excludes one-time gains.
Operating expenses exclude one-time charges and include stock compensation expense.
Customer R&D/Internal R&D breakdown based on Ramius internal estimates.
Based on SurModics' recently reported fourth quarter results, it appears that both management and the Board do not have a strong grasp on the serious business issues facing the Company. Further, we believe the 36.5% decline in stock price since reporting fourth quarter results demonstrates that shareholders have become increasingly uncomfortable with the direction of the Company.
SurModics is now at a critical juncture. Management and the Board need assistance in determining the right strategic direction for the Company and the right path forward to improve shareholder value. Our nominees have the necessary experience and desire to work constructively with management and the Board to address these issues and to assist in identifying and retaining a new Chief Executive Officer to lead the Company. We believe a negotiated resolution that results in a mutually agreeable reconstituted Board is in the best interests of all shareholders.
We appreciate your willingness to meet with us later today and look forward to having an active and productive dialogue. As the largest shareholder of SurModics, we have a strong vested interest in the performance of the Company and hope to work constructively with management and the Board to unlock value for all shareholders.
Jeffrey C. Smith
Peter Feld, 212-201-4878
Gavin Molinelli, 212-201-4828
SOURCE Ramius LLC