ANN ARBOR, Mich., July 29, 2009 (GLOBE NEWSWIRE) -- Tecumseh Products Company (Nasdaq:TECUA) (Nasdaq:TECUB), a leading global manufacturer of compressors and related products, today sent the following letter concerning the Company's upcoming 2009 Annual Meeting to all stockholders from CEO Edwin Buker. The Company also posted a number of Annual Meeting-related materials, including more information about its Board candidates, to the Company's website, which can be accessed by visiting http://tecumseh.investorroom.com/ and clicking on 2009 Annual Meeting.
Dear Fellow Shareholder,
As you probably know, our August 14, 2009 Annual Meeting involves a fundamental dispute about the best path to shareholder value creation. This dispute has been brought by dissident shareholder Todd Herrick and his son Kent, who control the Herrick Foundation and whose destruction of Tecumseh's value when they ran the Company resulted in their removal by the Board.
What is driving the Herricks? We believe it is their relentless, single-minded desire for control of the Company and the preservation of disproportionate voting power by any available means. The current proxy fight is another installment in this disturbing pattern of behavior.
Their "my company," "I'm the expert" mentality has led them -- time and again -- to take irresponsible and irrational actions that are harmful to other shareholders. These actions include driving Tecumseh to the brink of bankruptcy during their management tenure by pursuing a failed strategy and refusing to adjust when conditions demanded it; waging costly and disruptive litigation and proxy challenges against the Company following their removal from management to regain control of the Company; and saddling Tecumseh with an investigation relating to potentially illegal activity that occurred when they ran the Company and refusing to cooperate in the responsible management of this matter.
Although they own less than 1% of the economic interest in Tecumseh directly and control less than a 5% economic interest through the Herrick Foundation, they are asking you to overlook these facts and:
* Keep an antiquated capital structure that gives them a voice out
of all proportion to their ownership position -- and allows them
to continue their disruptive pattern. It is a structure that is
both out of step with mainstream corporate practice and makes
your stock less attractive to other investors.
* Give them majority control of the Board -- a prospect that
contradicts basic principles of good governance and fairness to
all shareholders.
* Hand them control of the Company, without offering a strategic
plan to create value for you going forward.
Given their self-serving actions and endless disregard for basic legal
and fiduciary obligations, the time has come for shareholders to
address a critical question:
Do we return the Company to a failed regime
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or do we move forward with proven management?
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Your Board of Directors and management team are seeking your support to continue advancing the Company's transformation and move Tecumseh forward, not back. We ask you to consider our substantial progress over the past two years, including successfully guiding the Company through an unprecedented global economic downturn, and approve:
* A "one-share, one vote for all" recapitalization plan that will
create a world-class capital structure for Tecumseh and align
voting power with economic interests
* A slate of Board nominees that has the experience and independence
to guide Tecumseh toward its goals in today's difficult economic
environment
We urge you to vote FOR the Company's proposals using the
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WHITE proxy card.
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A TRACK RECORD THAT SPELLS HARM FOR INVESTORS: FOUR FACTS ALL SHAREHOLDERS MUST CONSIDER ABOUT THE HERRICKS
FACT 1: Their Disregard for Legal/Ethical Norms Puts Investors at Risk
Global Price-Fixing Investigation
One of the most significant legal challenges facing Tecumseh is the current investigation into possible anti-competitive practices initiated by the U.S. Department of Justice (DOJ) as well as authorities in Brazil, the EU and other jurisdictions. Activity that took place within Tecumseh while the Herricks were in charge is a subject of the investigations, and documents and witness testimony revealed during the investigations suggest that, at a minimum, the Herricks had direct knowledge of questionable business practices and potentially illegal anti-competitive activity -- a suggestion they have not denied.
Tecumseh is cooperating with authorities and has entered conditional amnesty agreements conditioned on the Company's continued cooperation with the DOJ, that should greatly reduce the Company's exposure to potential fines and penalties. The DOJ has specifically excluded Todd and Kent Herrick from its agreement with Tecumseh based on, the Company believes, their refusal to cooperate with investigating authorities. They remain subject to potential criminal prosecution -- and have not indicated whether a Herrick-controlled Board would support ongoing cooperation with the DOJ or continue to place the Herricks' individual interests above those of the Company, thereby increasing the financial and legal risks for the Company.
Attorney General Investigation for Misuse of Herrick Foundation Resources
In addition to wasting the Company's resources on a seemingly endless stream of frivolous court challenges and proxy fights, Todd Herrick has unilaterally caused the Herrick Foundation to spend millions of dollars to advance his self-serving agenda to regain control, resulting in the disruption of the Company's business -- activity that appears to violate the Foundation's charitable mission and that has involved the Foundation in an ongoing investigation by the Michigan Attorney General and a court-appointed Special Fiduciary.
Shopping the Company Using Non-Public Information In mid-2008, without advising the Board, and in violation of Kent Herrick's fiduciary duty as a Board member, the Herricks distributed confidential, non-public information to various potential buyers -- including Tecumseh competitors -- in a failed attempt to arrange a transaction with a partner to give them control.
Repeated Failure to Strengthen Corporate Accounting Controls
Under Todd Herrick's leadership, Tecumseh failed Sarbanes-Oxley ("SOX") testing in 2004, 2005 and 2006 -- the first three years of this important investor protection requirement.
FACT 2: Their Irrational Pursuit of Control Comes at the Expense of Other Shareholders
Todd Herrick's quest to solidify his control of Tecumseh began more than a decade ago, when he pushed for the implementation of the Company's antiquated voting and non-voting share class structure. Since their removal from management in early 2007, the Herricks have tried time and again to regain control of the Board, launching expensive, frivolous and often irrational end-run attempts. The Herricks this time have nominated through the Foundation, controlled by Todd Herrick, four nominees, three of whom have prior relationships with Honigman, Miller, Schwartz and Cohn, the law firm representing Todd and Kent Herrick personally, and the fourth is Kent Herrick. This is another transparent attempt by the Herricks to restore themselves to power by any means possible. In an effort to protect all shareholders, your Board has tried repeatedly to reach a fair and reasonable compromise with the Herricks.
EARLY 2007: Todd Herrick caused the Herrick Foundation to nominate 3 people to the then 5-person Board. The Board did not oppose the Herricks' nominees and expanded the Board to 7, thereby assuring Board representation for the Herricks. The Herricks responded with a lawsuit to enforce their "rights" to elect a majority of Directors, but eventually settled for 2 representatives on the 7-person Board.
FALL 2008: Herrick Foundation sues the Company to call a Special Meeting in an attempt to remove two independent directors and take control of the 7-member Board. After extensive litigation and a costly proxy contest, the Herricks fail to win shareholder support.
DECEMBER 2008: FIRST, the Herricks announce their support for a recapitalization during their proxy solicitation for the Fall 2008 Special Meeting. THEN, the Herricks sue the Company to block a recapitalization.
SPRING 2009: The Herricks launch another proxy contest to acquire control of the Board and refuse to settle for anything less. They oppose a recapitalization plan similar to one they supported only months before.
SUMMER 2009: The Herricks bring legal action seeking to change the Annual Meeting date to preclude a shareholder vote on the recapitalization. The court affirmed the Company's meeting date.
FACT 3: The Herricks Have an Inescapable Track Record of Value Destruction at Tecumseh
As the Company's prior management team, Todd and Kent Herrick destroyed shareholder value with poor strategic and operational decisions -- decisions that we believe are as disturbing as the underlying lack of sound judgment that produced them.
Case in point: they purchased Fasco for $411 million and sold it just five years later for $181 million LESS than they paid.
Tecumseh was debt-free in 2002, but the Herricks' Fasco purchase resulted in debt of nearly $300 million. By 2005 the Company was in violation of its debt covenants, and in 2006 Tecumseh was struggling under the weight of $380 million in debt after negative free cash flow of ($156.5 million) for the year. Their failed strategy had put Tecumseh on the fast track to oblivion.
This was hardly an isolated and unfortunate misstep -- it reveals a consistent track record of ineffective management that we believe is rooted in their indecisive, inconsistent and misguided business approach:
* Built engine facility in Brazil.
RESULT: Nearly $100 million in operating losses/restructuring in
last three years of operation
* Unsuccessfully pursued development of scroll compressors.
RESULT: Invested more than $45 million in new production facility
without a viable product to produce; wrote off entire $45 million
investment
* Acquired European compressor operations with $40 million in
goodwill.
RESULT: Wrote off $34 million
* Pursued engine operation in Czech Republic.
RESULT: Nearly $20 million in operational losses/restructuring in
last three years of operation
= Product & Acquisition Failures Totaling at Least $380 Million
In addition, Tecumseh suffered years of underperformance caused by excessive vertical integration, redundant costs and significant operating inefficiencies. Without the justified removal of the Herricks, we believe the Company could not have survived 2007, let alone emerged from the credit crisis.
FACT 4: Their Approach Would Again Destroy Tecumseh's Financial Condition
The Herricks claim they will urgently focus on preserving cash and generating operational cash flow. Yet they promise cash-depleting actions such as dividends and suggest that "inexpensive strategic partnerships" (which so far reside only in their imaginations, since they provide no specifics) will magically generate operational cash flow to address the massive cash deficiency their other proposals will create. Here's how their proposals add up*:
HERRICK PROPOSAL RESULT
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- Immediately use cash to pay - Deplete $120 million of cash by
a dividend, including resuming 2012, ensuring the need for
regular quarterly dividends at a expensive credit, particularly
cost of $30-50 million per year given the event of default
created by the change in control
- Maintain duplicate "high-cost" - Miss opportunity for $37 million
manufacturing cost facilities in cumulative savings (net of
despite significant overcapacity reduced restructuring costs) by
and retain antiquated, 2012; increase in working capital
inefficient operating processes needs by $62 million based upon
return to historic ratios
- Maintain vertical integration - Increase cumulative capital
requiring significant capital spending of an average of $20
expenditures and forego available million per year, or by $63
high-quality, cost-efficient million through 2012
outsource opportunities
* For our detailed analysis, please visit http://tecumseh.investorroom.com/, click on 2009 Annual Meeting and select HERRICK STRATEGY ASSUMPTIONS.
Shareholders have asked the Herricks to spell out in detail the results their proposals will yield. They have refused, we believe, because the results are obvious:
They will deplete the Company of its cash by the end of 2010, if not sooner!
We do not believe that their approach -- promise to surrender much-needed cash during the worst economic downturn in 50 years and hope that bargain shopping for technology will generate profit sometime in the future -- is a gamble worth taking.
CONSIDER OUR ACTIONS
Throughout the current proxy contest, your Board and management team have clearly communicated our vision for the future of Tecumseh and the many actions we are pursuing to achieve that vision. We urge our shareholders to consider the following:
* We have been executing on -- and communicating about -- our strategic
plan. We have communicated the details of our strategic plan to
investors, including the intensive, data-driven process we employed
and the respected third-party professionals we consulted as we
formulated our conclusions. The Herricks, meanwhile, have offered no
plan.
* We have proposed a "one share, one vote for all" recapitalization
proposal that is consistent with best practices in corporate
governance, that will give all shareholders a voice that is equal to
their ownership, and that is similar to one the Herricks supported
when they tried to secure shareholder support at the Fall 2008 Special
Meeting. We believe the recapitalization will make our stock more
attractive for a broader number of investors, provide Class A
shareholders with a say in the Company and bring substantially greater
liquidity to our Class B shareholders. Without a recapitalization, the
current outdated capital structure, rejected by all but a small
percentage of public companies, will continue to be a permanent drag
on realizing the full potential of this enterprise.
* We have nominated a world-class Board. In contrast to the Herricks'
hand-picked slate, with historical ties to the Herricks' law firm, our
seven director nominees have the diverse skill sets, independence and
record of integrity to achieve best practices in corporate governance
and accountability. For more information about our Board candidates
and other Annual Meeting-related materials, please visit
http://tecumseh.investorroom.com/ and click on 2009 Annual Meeting.
* Our performance stands in stark contrast to that of the prior regime:
Graphs detailing this information are available at http://media.globenewswire.com/cache/9520/file/7174.pdf
THE BOTTOM LINE: THEIR QUEST FOR CONTROL PUTS YOUR INVESTMENT AT RISK
The Herricks' self-serving behavior is fundamentally at odds with a professionally managed, global public company and puts your investment and the Company at significant risk. If the Herricks prevail, the same individuals who drove the Company to the brink of bankruptcy in 2007 will have control of the Board and your Company, despite the Herrick Foundation's less than 5% economic interest.
THE CHOICE IS CLEAR:
* Support your current management team and the Board's proposal to
modernize Tecumseh's capital structure through a fair, "one share,
one vote for all" recapitalization
* Support our experienced, well-qualified director nominees to make
the right decisions to continue driving positive momentum in the
marketplace and increased shareholder value
We thank you for your continued support, and urge you to vote FOR the recapitalization, FOR the Company's director nominees, and AGAINST the Herrick Foundation's advisory vote shareholder proposal by signing and returning the WHITE proxy card today.
Sincerely,
Ed Buker
Chairman, President and Chief Executive Officer
About Tecumseh Products Company
Tecumseh Products Company is a full-line independent global manufacturer of hermetically sealed compressors for residential and commercial refrigerators, freezers, water coolers, dehumidifiers, window air conditioning units and residential and commercial central system air conditioners and heat pumps.
Press releases and other investor information can be accessed via the Investor Relations section of Tecumseh Products Company's Internet web site at http://www.tecumseh.com.
The Tecumseh Products Company logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4364
Cautionary Statements Relating to Forward-Looking Statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to the safe harbor provisions created by that Act. In addition, forward-looking statements may be made orally in the future by or on behalf of the Company. Forward-looking statements can be identified by the use of terms such as "expects," "should," "may," "believes," "anticipates," "will," and other future tense and forward-looking terminology.
Readers are cautioned that actual results may differ materially from those projected as a result of certain risks and uncertainties, including, but not limited to, i) the success of our ongoing effort to bring costs in line with projected production levels and product mix; ii) financial market changes, including fluctuations in foreign currency exchange rates and interest rates; iii) availability and cost of materials, particularly commodities, including steel and copper, whose cost can be subject to significant variation; iv) changes in business conditions and the economy in general in both foreign and domestic markets, the condition of which may magnify other risk factors; v) weather conditions affecting demand for replacement products; vi) actions of competitors; vii) our ability to maintain adequate liquidity in total and within each foreign operation; viii) the effect of terrorist activity and armed conflict; ix) economic trend factors such as housing starts; x) emerging governmental regulations; xi) the ultimate cost of resolving environmental and legal matters; xii) our ability to profitably develop, manufacture and sell both new and existing products; xiii) the extent of any business disruption that may result from the restructuring and realignment of our manufacturing operations or system implementations, the ultimate cost of those initiatives and the amount of savings actually realized; xiv) the extent of any business disruption caused by work stoppages initiated by organized labor unions; xv) potential political and economic adversities that could adversely affect anticipated sales and production in Brazil; xvi) potential political and economic adversities that could adversely affect anticipated sales and production in India, including potential military conflict with neighboring countries; xvii) increased or unexpected warranty claims; and xviii) the ongoing financial health of major customers. These forward-looking statements are made only as of the date of this release, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Information About Participants
ON MARCH 27, 2009, TECUMSEH PRODUCTS COMPANY FILED A PRELIMINARY PROXY STATEMENT/PROSPECTUS, AS AMENDED ON MAY 19, 2009, WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC"). BEFORE SOLICITING PROXIES, WE WILL PROVIDE SHAREHOLDERS WITH A DEFINITIVE PROXY STATEMENT/PROSPECTUS CONTAINING INFORMATION ABOUT THE COMPANY AND CERTAIN PROPOSALS TO BE PRESENTED TO A VOTE OF SHAREHOLDERS AT ITS 2009 ANNUAL MEETING. WE ADVISE SHAREHOLDERS TO READ THE DEFINITIVE PROXY STATEMENT/PROSPECTUS WHEN IT IS AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. SHAREHOLDERS MAY OBTAIN FREE COPIES OF THE DEFINITIVE PROXY STATEMENT/PROSPECTUS (WHEN IT IS AVAILABLE) AND OTHER DOCUMENTS WE FILE WITH THE SEC AT THE SEC'S WEBSITE AT WWW.SEC.GOV. THEY MAY ALSO ACCESS A COPY OF OUR DEFINITIVE PROXY STATEMENT/PROSPECTUS WHEN IT IS AVAILABLE BY ACCESSING WWW.TECUMSEH.COM. IN ADDITION, SHAREHOLDERS MAY OBTAIN A FREE COPY OF THE DEFINITIVE PROXY STATEMENT/PROSPECTUS WHEN IT IS AVAILABLE BY CONTACTING GEORGESON INC. TOLL FREE AT (866) 203-1198 (BANKS AND BROKERS CALL (212) 440-9800).
TECUMSEH PRODUCTS COMPANY, OUR DIRECTORS, DIRECTOR NOMINEES AND SOME OF OUR EXECUTIVE OFFICERS WILL BE DEEMED TO BE PARTICIPANTS IN THE SOLICITATION OF PROXIES IN RESPECT OF THE MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING. INFORMATION ABOUT OUR DIRECTORS, DIRECTOR NOMINEES AND SOME OF OUR EXECUTIVE OFFICERS WILL BE CONTAINED IN THE DEFINITIVE PROXY STATEMENT/PROSPECTUS. INFORMATION ABOUT THE PARTICIPANTS' DIRECT OR INDIRECT INTERESTS IN THE MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING WILL BE CONTAINED IN THE DEFINITIVE PROXY STATEMENT/PROSPECTUS REFERRED TO ABOVE.