NEW YORK, July 21, 2014 (GLOBE NEWSWIRE) -- Moab Capital Partners, LLC ("Moab Capital") has sent the following letter to the Board of Directors of EnerCare, Inc. (TSX:ECI) to express its grave concerns regarding a pattern of actions that appears to prioritize their own entrenchment above outside interests. Moab Capital is the investment manager of various entities that beneficially own over 5% of EnerCare's outstanding shares. Entities managed by Moab Capital have been shareholders of EnerCare for four years and, based on publicly available information, we believe we are EnerCare's second largest shareholder today.
Moab Capital Partners, LLC
15 East 62nd Street
New York, NY 10065
July 21, 2014
Mr. Jim Pantelidis
Mr. John A Macdonald
Ms. Grace M. Palombo
Mr. Jerry Patava
Mr. Roy J. Pearce
Mr. Michael Rousseau
Mr. William M. Wells
Ms. Lisa de Wilde
To the Board of Directors of EnerCare:
Last week, we witnessed governance concerns at EnerCare, Inc. ("EnerCare" or the "Company") rise to the forefront once again as TPG Special Situations Partners, LLC ("TSSP"), an affiliate of EnerCare's largest shareholder, shared with the public their saga of your repeated efforts to thwart the due diligence process which would have allowed them to prepare a premium acquisition proposal for the shareholders. In this case, a highly regarded and well-capitalized institution like TPG simply seeks access to conduct due diligence and line up financing but you have denied such access. According to TPG's website, TSSP and affiliates have lead or co-lead 165 investments as a principal, investing $45 billion of equity capital. We do not understand any good reason why this Board would not engage TSSP in price negotiations or allow TSSP to conduct its due diligence other than self-interested entrenchment, bypassing its fiduciary duties.
Sadly, these recent events are not the first time we have seen this Board ignore good corporate governance practices. In 2012, this Board, under the leadership of current Chairman Jim Pantelidis, resorted to outrageous tactics to oppose another shareholder's effort to supplement the Board with credible shareholder representative nominees. This Board approved the expenditure of $1.7 million of the Company's cash on hand, most of which was paid in the form of a $0.05 payment per share to buy the votes of any shareholder who would support them. Additionally, as a last minute tactic in the 2012 proxy campaign, this Board unilaterally expanded its size from six to eight directors by adding two self-appointed directors without a shareholder vote, in an effort to dilute the interests of the activist shareholder.
TPG's publicly disclosed letter to shareholders makes numerous valid points as to why the Board should engage a broad strategic alternatives process. EnerCare's sub-metering business has vastly increased the complexity of the business and management's execution to-date has been inconsistent at best, yielding minimal profits to date. Additionally, while shareholders may never complain about the healthy dividend EnerCare pays, we believe it is reasonable to ask if paying the dividend has come at the expense of future growth opportunities. We have ourselves pressed management over the years to very aggressively direct capital towards the highly attractive and very long-term contracts available today in the sub-metering business because we believe the large initial investments will eventually yield profitable and attractive long-term returns as tenants turn over and become our customers. This of course assumes we can execute.
Similarly, we hear that larger water heater and HVAC rental opportunities have become available to the Company but these opportunities also require large initial capital deployments. Again, perhaps the dividend policy is not as wise as it seems for long-term value creation.
Shareholders may well be rewarded if TSSP or another potential buyer can pay us for the large growth opportunities in EnerCare's core businesses rather than remaining a public company overseen by this Board. Based on analyst reports and trading levels, it seems that EnerCare's stock price is largely determined by the dividend, which is based on trailing cash flows, or the attrition of the rental portfolio. We have only seen one publishing analyst separately value our growing sub-metering segment in a sum of the parts analysis. A strategic alternatives process can deliver shareholders optimal value for each segment.
Your letter to shareholders on July 17th was incomplete. A Board which rejects a premium offer on the grounds that the offer is inadequate ought to explore its strategic alternatives to maximize value or demonstrate why EnerCare is worth more as a stand-alone company than TSSP is willing to pay. You offered us nothing, which we can only assume is because you are putting your personal interests above your fiduciary responsibilities.
We urge you to exercise your fiduciary responsibility and engage a financial advisor to explore EnerCare's strategic alternatives now.
Moab Capital Partners, LLC
About Moab Capital Partners, LLC
Moab Capital is an SEC-registered independent investment advisor founded in 2006 and is located in New York, NY.
Michael M. Rothenberg, Moab Capital Partners, LLC 212-981-2647