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SIMPSON INDUSTRIES, INC.
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(Name of Registrant as Specified in Its Charter)
MMI INVESTMENTS II-A, L.P.; MCM MANAGEMENT, LLC;
MILLBROOK CAPITAL MANAGEMENT, INC.; JOHN S. DYSON;
CLAY B. LIFFLANDER; ALAN L. RIVERA; ROBERT B. KAY AND JEROME LANDE
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[LETTERHEAD]
January 26, 2000
Dear :
This past week, we filed a revised preliminary proxy statement for
shareholders of Simpson Industries, Inc. ("Simpson" or the "Company"). The
purpose of our filing was to indicate that, in addition to soliciting proxies
in support of our Shareholder Value Proposal, we also intend to solicit
proxies for the election of three individuals nominated by us to serve on
Simpson's Board: John S. Dyson, Clay B. Lifflander and Alan Rivera. A copy of
our revised preliminary proxy statement (our "proxy statement") is enclosed
with this letter.
We took this step because we believe that even if MMI's
Shareholder Value Proposal calling for a sale of the Company were passed by
Simpson's shareholders, there is a strong chance that it will not be given
appropriate consideration by Simpson's Board and management. In a letter sent
December 8, 1999 to Simpson's Board of Directors, we requested that Mr.
Parrott state whether he would be willing to implement the will of the
shareholders in the event of passage of the Shareholder Value Proposal.
Neither he, nor any member of Simpson's Board, has responded to our inquiry.
This fact, coupled with management's ongoing evasion of the discussion of
shareholder value has caused us to conclude that the active participation of
MMI on the Board of Directors may be necessary to ensure that Simpson's
management considers all available options for the creation of shareholder
value.
ALL OF OUR NOMINEES ARE COMMITTED TO MAXIMIZING THE VALUE OF
SIMPSON STOCK THROUGH ANY MEANS, INCLUDING THE SOLICITATION OF OFFERS BY AN
INDEPENDENT INVESTMENT BANK FOR THE SALE OF SIMPSON AT AN ATTRACTIVE PRICE.
FURTHERMORE, MMI'S NOMINEES WILL REFUSE ANY REMUNERATION IN THE EVENT THEY
ARE ELECTED. APPRECIATION IN SIMPSON'S STOCK PRICE WILL, AND ALWAYS SHOULD,
BE THE REWARD.
Last week, Simpson filed materials with the SEC that we understand
were used by management during presentations to certain large shareholders.
It is our opinion that Simpson management has outlined in this filing exactly
the type of unimpressive strategic plan that makes an unattractive public
entity. The following is our response to and analysis of their presentation:
- - MANAGEMENT'S PLAN FORECASTS $1 BILLION IN REVENUES BY 2005 - Were
Simpson a $1 billion company today, we believe that it would just be on
the cusp of the necessary size to thrive as an
Carnegie Hall Tower Wing Road
152 West 57th Street RR 1, Box 167D
New York, NY 10019 Millbrook, NY 12545
(212) 586-4333 (914) 677-8383
Fax: (212) 586-0340 Fax: (914) 677-6186
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independent public company in the auto parts industry. One can only
speculate how high this bar will have been raised by 2005 when Simpson
plans to achieve this "lofty" aspiration.
- - MANAGEMENT'S FINANCIAL PLAN GETS US NOWHERE - Using Simpson's own
numbers as presented in its filing imputes earnings per share in 2005 of
$2.13 to $2.62. Using the 9.5x P/E multiple at which Simpson currently
trades (and may still in 2005 as an undersized auto parts supplier with
only $1 billion in revenue), management's plan equates to a NET PRESENT
VALUE FOR OUR SHARES OF APPROXIMATELY $10-$12.50 - I.E. NO REAL CREATION
OF SHAREHOLDER VALUE!
- - SIMPSON'S LACK OF AN M&A PROGRAM - Management claims to be actively
engaged in acquisition and joint venture discussions. We have grave
doubts concerning Simpson's ability to succeed as a consolidator given
its traditional inactivity in this area, its lack of a reputation as an
acquirer, and its depressed market valuation. Furthermore, management
claims to have sufficient debt capacity to fund acquisitions, but we
believe they do not clarify that their available capacity is not large
enough to fund a MAJOR acquisition. We believe that management's claims
about adequate available leverage are a reflection of their
misunderstanding of the capital and ambition necessary to operate a
successful M&A program. Furthermore, management's citation of its credit
statistics only belies the problem: levering up to three times EBITDA
does not equal significant debt capacity if the amount of EBITDA against
which you borrow is as small as Simpson's.
While management may counsel patience, we firmly believe that NOW
IS THE TIME TO SELL SIMPSON. Simpson has just finished a record earnings year
and is forecasting another. Deal multiples are at very high levels (7.6 times
EBITDA for the automotive industry average in the last twelve months) and two
other similarly positioned auto parts producers have just been put into play.
Furthermore, management may insist that a formal sale process
conducted by a recognized investment bank will not achieve greater value than
management's own process of exploring alternatives for value creation. This
we believe is also incorrect. While a formal exploration of all strategic
alternatives may threaten existing management, it is a recognized and
commonly accepted means to create real value for shareholders. IT IS TIME TO
STOP TRYING TO ACHIEVE VALUE WITH WISHFUL THINKING AND START REACTING TO THE
DEMANDS OF A CHANGING MARKETPLACE.
As always if you have any questions, please contact myself, Jerome
Lande, or any of MMI's director nominees at (212) 586-4333.
Sincerely,
Clay Lifflander
Enclosure
