North Pittsburgh Systems' (Nasdaq: NPSI) annual shareholders' meeting should be eventful this year, as hedge fund activists attempt to nominate two directors to the company's board in a push to sell the company. North Pitt was one of the topics discussed in a recent Fool interview with Santa Monica Partners founder Lawrence J. Goldstein, whose fund boasts annualized returns of 15% (after fees) since 1982.
In an April letter to shareholders, a group calling itself the North Pittsburgh Systems Shareholder Committee stated that a sale of the company is inevitable because of fierce competition from much larger competitors in the telecom industry. The group reported a 6.58% stake in North Pitt and informed shareholders that a sale of the company now would result in a nice premium but that the price would end up being lower if they wait to sell out.
The company responded by urging shareholders not to vote for the group's two candidates for the board, remarking that the committee's goals were not consistent with the company's long-term goal of creating sustainable value. As examples, the company cites its streak of 94 consecutive quarters of dividend payments and other initiatives in the areas of wireless and VoIP. At its meeting in March, the board of directors for North Pitt decided not to call the 2007 annual shareholders' meeting for its normal time of the third Friday in May. Instead, the board decided to postpone the meeting for some time in June or July.
The situation at North Pitt closely resembles that of another Santa Monica activist position which resulted in the sale of the company -- namely Blair, which was a micro-cap retailer that focused primarily on apparel geared toward older consumers. Larry Goldstein best summarizes the North Pitt situation in the March interview: "They can't compete with the cable companies, which are bigger. ... It makes sense to sell out to get rid of overhead -- you don't need two CFOs for such a small subscriber base. We suggested they sell the company. The upcoming election will be very important." With a stagnant stock price for most of the last two years and fierce competition from much larger companies, don't be shocked if frustrated shareholders drive management toward a sale.
Fool contributor Mike Havrilla, R.Ph., B.S., Pharm.D., is a Rite Aid pharmacist who lives, writes, works, and enjoys running on the streets and trails of Portage, Pa. He invites your comments and feedback. Mike does not have a position in any company mentioned in this article. The Fool has a disclosure policy.
