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Shareholders rage over Imation's incredible 88% plunge

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Earnings call disagreements

Rich Rubin of Hawkeye Capital said: "Clearly we are disappointed with the numbers. Our stock is down 10 per cent today and we have seen the cash go from 305 [$million] at the end of 2010 to 233 [$million] at the end of September. We have seen tangible book [value] go down."

Rubin noted that no company execs or directors (insiders) were buying shares: "You can't tell us the numbers on how you've spent our cash. So as shareholders you can use these terms like progress and they may sound great. We're not seeing anything. We are just seeing cash leave the balance sheet. We are seeing no insiders buying shares in the open market, so that shows us how confident you are."

Then he let rip with both barrels: "We have seen nothing to prove that this strategy is going to work. And yet your shares had been trading below cash and you don't aggressively buy back your shares. It's a disappointment. And none of you guys buy back shares. None of you buy in the open market."

Lucas replied: "You are very consistent in your comments to me, so I appreciate that. I totally understand what you are asking for. We have outlined very clearly I think what the strategic direction of this company is, how we are going to best leverage our assets to increase shareholder return. We have said we are in a state of transition for 2011 and much of 2012. We plan to continue down that path. Now as we..." at which point he was interrupted.

Rubin fired another verbal barrage: "You are following the path of Kodak. You are going to spend and take a shot with shareholders' money and you have a ton of cash. The stock trades well below liquidation value. And you are doing nothing about it. You're just taking shots at acquisitions."

Lucas responded: "I appreciate your comments. We have done some share buybacks and we will continue to evaluate that depending on stock price and market conditions. We are very committed to our strategy going forward. We're very thoughtful about what we do. We're very analytical about what we do and we believe we are making tremendous strides to return shareholder value over the long term.

"This is not a short-term play for us. This is a long-term transformation that is going to eventually build tremendous value for shareholders. I understand your point of view. I think perhaps we just disagree with it."

Shareholders versus the execs

Rubin's point is that the company has $233m in cash but its market capitalisation is just $220m, less than the cash it holds in the bank. The company's leadership is depleting its cash in acquisitions and the company's leadership are not buying Imation shares.

If the company's chief officers are not buying shares then any professions of faith they have in the company's prospects are not matched by their personal financial investments. Understandably some shareholders are deeply displeased.

A Seeking Alpha article said:

According to the last proxy statement, insiders own 6.09 per cent of the company, reflecting an economic value of $14.34 million. One would expect this level of investment to create an alignment of interests with other shareholders, however these same insiders earned total director and executive compensation totalling more than $11 million last year alone.

If it is personally so profitable to continue operating, then why would you ever move to dissolve (or shrink through a share repurchase), even if continuing to operate destroys shareholder value? It is the board’s responsibility to represent shareholder interests, yet it does not appear to be taking the necessary steps. Additionally, while management proclaims its confidence in this strategy, Mr Rubin correctly points out that insiders are not buying shares personally.

What would it take to get Imation moving again?

One conclusion could be that Imation needs new leadership. Maybe it needs an entrepreneurial CEO to turn the company around. A board with more impatience would have started looking for a successor already. ®

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