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Simpson Industries, Inc.
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Simpson Industries, Inc.
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[SIMPSON INDUSTRIES, INC. LETTERHEAD]
April 11, 2000
Dear Institutional Investor:
You may be aware that an analyst at Institutional Shareholder Services recently
issued a recommendation to its clients in favor of the election of John Dyson's
nominees to our Board and the approval of his sell the company proposal.
As a general matter, we absolutely disagree with his dismissal of the
opportunities presented by the current transformation of the auto supply
industry. The ISS analysis merely restates Dyson's facile and ill-informed
arguments. We are not alone in our disagreement. Several industry analysts have
recently stated that MMI has not presented a viable plan. They do not believe an
auction of the Company to be a reasonable prospect.
However, we are particularly disturbed because ISS discounts or ignores real
world concerns that get in the way of ISS's belief that "the quest for a
strategic transaction" [translation, "sale"] should be pursued with the same
vigor and determination as management's operational vision for the company".
Such real world concerns pose severe risk to the shareholders. The report is
also based on analyses that are, at best, unsophisticated. Because ISS does not
have any fiduciary responsibilities to your clients, the ultimate owner of the
Simpson shares, we thought it best to share our concerns directly with you.
ELECTION OF DYSON'S NOMINEES AND APPROVAL OF THE PUBLIC AUCTION PROPOSAL COULD
DAMAGE THE COMPANY DUE TO THE RISK IT POSES TO OUR ABILITY TO WIN AND LAUNCH
LONG-TERM CONTRACTS AND TO RECRUIT AND RETAIN KEY EMPLOYEES.
The ISS analyst completely ignored our very real concern that election of
Dyson's nominees and approval of the public auction proposal could substantially
harm our ability to do business, diminishing both the value of the Company and
your investment. Unlike most companies, Simpson's continued health is based on
its ability to win large, long-term contracts because of the extended time
horizons prevalent in our industry. As ISS concedes, we have been very
successful recently in winning such contracts.
It has been our experience, however, that manufacturers awarding such contracts
need reassurances that the winner will continue to be the party fulfilling the
contract. Without such reassurances of continuing stability, they will not award
the contract, for obvious reasons. We can not provide such reassurances of
stability if three newly elected Directors are committed to the immediate sale
of the company and the proposal has been approved.
Consequently, Dyson's success could result in a sale of the company at almost
any price, since our inability to keep winning essential contracts will
substantially erode the value of the business.
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Similarly, ISS ignores our very real concern that the instability caused by
Dyson's success could substantially affect our ability to recruit and retain
engineers, designers and other key employees. We operate in full-employment
environments. In the best of circumstances, it is hard to keep fully staffed
with the employees we need to remain competitive given the shortage of qualified
candidates in almost every engineering and IT category. Uncertainty concerning
the future of the company will only make that worse. Several key employees have
already expressed deep concern about their future with the company if Dyson is
successful.
These concerns deserve serious consideration and should not be summarily
dismissed in the manner of the ISS recommendation.
Do not misunderstand. WE ARE NOT OPPOSED TO A SALE OR ANY OTHER TRANSACTION THAT
WOULD MAXIMIZE SHAREHOLDER VALUES. We have in fact pursued such opportunities,
as ISS conceded. The process, however, needs to be managed carefully by a
qualified, experienced Board. Regardless of ISS's fond wishes, the election of
Dyson and his nominees with their one-plank platform to sell the company and the
adoption of their proposal will put a for sale sign on Simpson, at least in the
minds of our customers and employees.
IT IS PAINFULLY OBVIOUS TO US THAT ISS FAILS TO UNDERSTAND THE IMPACT OF DYSON'S
EXTREMELY HIGH LEVERAGE RATIO. Interest and other carrying costs require
leveraged investors to seek a hasty sale, rather than the best sale. WE ARE NOT
AWARE OF ANY INVESTORS WHO REGARD CARRYING COSTS AS AN OPPORTUNITY TO HOLD ON
FOR A HIGHER SALES PRICE.
A QUESTION OF ACCURACY
There are numerous other inaccuracies and fallacies in ISS's analysis. Among
them:
- The logic behind a 4.7% leveraged investor being entitled to 30% of
the Board seats;
- The "public company board experience" he refers to in citing the
qualifications of the Dyson employee/nominees. Neither Mr. Lifflander
nor Mr. Rivera have disclosed any experience as Directors of publicly
traded companies;
- An acknowledgment that the sale multiples cited by Dyson are
overstated but then going on to present his own, equally facile
analysis based on a simple database query based on SIC codes, rather
than seeking the (less optimistic) opinions of analysts who actually
follow the industry.
- The chart presented as depicting MMI's "basis" in its Simpson shares
which, incredibly, ignores MMI's margin debt and leveraged profit
potential.
- Citing the MMI nominees' "significant level of stock ownership" as
their "single biggest qualifying factor". MMI is Dyson's private
investment vehicle. We believe that Mssrs. Lifflander and Rivera are
Dyson employees first and Simpson shareholders second.
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- Glossing over the risk shareholders would bear should Dyson prevail;
the Company is immediately and publicly put on the block; the damage
to its business cited above ensues; and an unacceptably low or
no-premium offer is the end result. Given current industry valuations,
we believe the risk is real.
PLEASE LET US PUT THIS DEBATE BACK IN THE BOARDROOM, WHERE IT BELONGS.
VOTE WITH OUR ASSURANCE TO YOU THAT ANY BONA-FIDE OFFERS FOR SIMPSON WILL BE
CONSIDERED BY THE BOARD IN A PROFESSIONAL AND DELIBERATE MANNER.
VOTE WITH OUR ASSURANCE THAT YOUR INVESTMENT IN SIMPSON IS BEING OVERSEEN BY AN
INDEPENDENT, EXPERIENCED AND DEDICATED BOARD THAT IS INTENT ON RETURNING THE
MAXIMUM VALUE TO ALL INVESTORS, NOT JUST A SELF-INTERESTED FEW.
We will be contacting many of you over the next few days and look forward to
discussing these important issues with you. In the meantime, if you have any
questions for me or any of my fellow directors, please do not hesitate to call.
On behalf of the entire Simpson Board of Directors, I would like to thank you
for your attention and support.
Sincerely,
/s/ Roy E. Parrott
Roy E. Parrott
Chairman and Chief Executive Officer
