Orthofix shareholders urged by Glass Lewis to boot director Hewett

By Susanna Moon

Chicago, March 27 - RCG Starboard Advisors, LLC, an affiliate of Ramius LLC, said that Glass Lewis & Co, an independent proxy voting advisory service, has called for change on the board of directors of Orthofix International NV at the upcoming April 2 shareholders meeting.

Glass Lewis recommended that its clients vote on Ramius' proxy card to elect Charles T. Orsatti and to remove current director Peter J. Hewett. Ramius is the beneficial owner of 5.7% of the company's outstanding common shares.

Glass Lewis made the following comments in support of its conclusion:

• "We believe that [Ramius] has raised important concerns regarding the company's performance and strategic direction."

• We "are troubled at the seemingly reactionary nature of the Board's actions."

• "The restructuring plan was only announced around the time that [Ramius] publicly expressed its concerns and sought to call the special meeting."

• The writedown of 93% of the acquisition cost of Blackstone "calls into question the overall success of the acquisition."

• "Four of the 10 Orthofix directors are either affiliated with the company or are insiders. We believe this raises concerns about the objectivity and independence of the board and its ability to perform its proper oversight role."

• We "believe that the presence of new independent directors on the Orthofix board could provide valuable insight into the company's governance and business strategy."

In its report, Glass Lewis also gave the company an "F" grade under its proprietary pay-for-performance model. About 10% of companies in the Glass Lewis research universe receive this failing grade, according to the Ramius press release.

"In its analysis, Glass Lewis highlights serious issues with the current Orthofix board and concludes that new independent directors would add value to the board of Orthofix," Ramius Partner Jeffrey C. Smith said in the release.

"In addition to Glass Lewis' recommendation to support our nominee, just last week, RiskMetrics Group, another leading independent proxy advisory firm recommended shareholders support three of the four Ramius nominees including J. Michael Egan, Peter A. Feld and Charles T. Orsatti to replace three current directors," Smith added. "We believe these independent third-party recommendations are true validation of the need for change on the Orthofix board."

Meeting on Ramius proposals

On March 19 Orthofix said that Proxy Governance, Inc. recommended that Orthofix International NV shareholders reject each of the proposals put forth by Ramius LLC at the special meeting on April 2.

Orthofix was forced to schedule a special meeting of shareholders after Ramius delivered shares representing about 55% of the company's outstanding stock in support of a meeting for the purpose of making changes to the board.

According to Orthofix, the proxy advisory firm's report said "The problem with the dissident campaign is not an inability to evaluate what went wrong, but the profound absence of a plan to effect a credible recovery."

Orthofix said Proxy Governance reported that the company's board and management "have articulated a clear plan for recovery, with milestones and key metrics along the way, and appear to be tightly focused on execution."

Shareholder disagrees

Ramius said the Proxy Governance report shows that Orthofix's board has overseen "the massive destruction of shareholder value."

"Their report states, 'There is no question the company's post [Blackstone]-merger execution went utterly off the tracks, or that it has substantially eroded shareholder value, at least as measured by the three-year share price decline of more than 70%," said Ramius partner Jeffrey C. Smith.

Blackstone Medical was acquired in 2006.

"Prior to the acquisition of Blackstone, Orthofix was a healthy and debt-free company that had reasonable growth, strong profits and substantial free cash flow," Smith said.

Ramius denied it was seeking control of the company and said it believes Orthofix needs a reconstituted board to consider alternatives to protect and maximize shareholder value.

Company fires back

On Thursday, Orthofix accused Ramius of misleading shareholders in recent communications, including filings with the Securities and Exchange Commission, as part of the ongoing proxy contest.

Specifically, Orthofix said Ramius falsely:

• Linked chairman James Gero with the sharp price decline of Clearwater, Inc.;

• Stated that Orthofix board member Thomas J. Kester has no public or private board experience;

• Stated the company's office location is among the most expensive real estate in Boston; and

• Accused Orthofix of scheduling the special meeting as late as possible under Netherlands Antilles law.

As previously reported, Orthofix believes Ramius "exhibited poor judgment in the nomination of unqualified and problematic individuals" for election to the company's board.

Orthofix, a Curacao, the Netherlands Antilles-based diversified orthopedic products company, had previously questioned the qualifications of Ramius nominees Steven Lee and Peter A. Feld.

Ramius also nominated J. Michael Egan and Charles T. Orsatti for election to the Orthofix board in its bid to replace Gero, Peter Hewet, Alan Milinazzo and Walter P. von Wartburg.

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