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It's a proxy war: activist investor Balch Hill wants to bounce troubled SSD supplier STEC's board - which includes its CEO and its founder - and populate the boardroom with seven of its own nominees.

STEC is the former leading enterprise SSD supplier which has fallen on hard times and is now partway through a strategic direction change involving less dependence on OEMs and a focus on SAS and PCIe interface flash storage products.

STEC shareprice

STEC's share price over the past few years

Its shares have fallen in value from their EMC-supply contract peak in 2009 but are now starting to climb back a little, though nowhere near the giddy heights of four years ago.

Balch Hill and its associate Potomac Capital, according to an SEC 13D filing own 4.1 million (8.8 per cent) and 408,170 (less than 1 per cent) STEC shares respectively. The two investors have now nominated seven directors to serve on STEC's board, hoping that STEC shareholders will vote for these seven and not the existing board members at the upcoming 2013 STEC annual general meeting.

Balch believes that STEC has been mismanaged, is spending too much money on research and development and should return cash to the shareholders. It has previously called for STEC to explore strategic options such as selling the company.

Balch's filing asserts:

[We] believe that [STEC] has lost the trust of its key constituents, including its customers, shareholders, potential strategic partners and potential employees. [We] believe that this lost of trust originates at the top, necessitating meaningful change to the Board and executive management team.

One of its board nominees is Adam Leventhal, the chief technology officer for Delphix, previously of Oracle and Sun, where he was involved with the development of the DTrace diagnostic tool and Sun's 7000 storage system. It's a small world.

Another nominee is Clark Singer, SVP of HANA cloud computing at SAP. Nominees such as these lend credibility, Balch no doubt hopes, to its directorial slate. El Reg notes that none of the nominees is listed as having any experience of running a solid state storage products company.

Balch says it remains "willing to engage in constructive discussions with management and the Board regarding the nomination of directors at the Annual Meeting and the composition of [STEC's] Board in order to avoid a protracted and costly proxy contest."

STEC has issued a response to this, seeking some kind of accommodation. CEO Mark Moshayedi said:

We are disappointed that despite the good faith efforts of our Board of Directors and management to engage in constructive dialogue with Balch Hill and Potomac Capital, they have chosen to discount our 2013 strategic plan to create shareholder value, and instead focus on what we believe is an unnecessary, disruptive and wasteful proxy contest to take control of STEC, all without paying a premium to shareholders.

Nevertheless Moshayedi says STEC is willing to interview four of the nominees and choose two to stand as directors. He says STEC's strategic plan is good whereas Balch's ideas are "committed to advancing a narrow, self-serving agenda to take control of STEC and potentially auction off the company for a price significantly below the company's value, which clearly would not be in the best interests of all STEC shareholders."

You would have thought that with such a strategic gulf between Balch and STEC that STEC would have totally rejected Balch's ideas and gone full tilt into a proxy war. It's a measure perhaps of STEC's idea of the strength and direction of shareholder feeling that it has to extend an olive twig - it's hardly a branch - to Balch, with the offer of supporting two of its nominees.

There is no date set for STEC's 2013 AGM. A negotiated accommodation between STEC and Balch might yet be possible, no doubt depending on whether Balch sees itself getting a good return on its shares. ®

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