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Something’s up at Magal (and it’s not good - or, rather, it could be good later)

Monday, July 19, 2010

Covering public companies can be fun (they have to tell you everything!), but it can also be a quagmire of legalese that makes no sense.

This press release from Magal (they do perimeter direction and some PSIM stuff) is mostly the latter:

Magal Announces That it Received a Position Letter and Two Non-Binding Financing Proposals That Were Solicited by the Dissident Shareholder

Well, okay. I’m glad you got some mail and some proposals. Also, please note that I hope to some day be referred to as “the dissident shareholder.” That’s like an avenging super hero that wears a cape to Wall Street and blocks bad guys from siphoning money out of other people’s pockets.

Dan notes that The Dissident Shareholder also sounds like a John Grisham novel.

Finally, it’s possible I will start a band called Sam Pfeifle and the Dissident Shareholders.

YAHUD, Israel, July 19, 2010/PRNewswire-FirstCall/ — Magal Security Systems Ltd. (NASDAQ GMS: MAGS, TASE: MAGS) today announced that it received two non-binding financing proposals from Plenus and Optex Co., Ltd. These proposals were solicited by the shareholders who requested that an Extraordinary General Meeting of the Shareholders be called to replace the majority of the current members of Magal’s Board of Directors. Both proposals explicitly state that they are non-binding and are conditioned upon the conclusion of certain conditions. In addition, the Company has received a position letter from these shareholders.

So … huh?

You kind of have to go to the SEC documents to figure out what this is about.

Here’s the proposal from Plenus, an Israeli group of funds (a fund of funds?). They want to lend Magal $6m.

Here’s the proposal from Optex, a Japanese manufacturer. They want to lend Magal $5.5m, but at a slightly cheaper rate.

Both want to help out Magal with a bridge loan to keep the company from going under. At the moment, Nathan Kirsh wants to lend the money to keep the company solvent, keeping the board as is. These two groups would rather lend the money, but switch out the board. Neither appear to be impressed with the current board.

Here’s how Optex puts it:

We also believe that the potential of Magal’s products and technology has not been translated by Magal’s current board and management into the world success that it may be, as has been evidenced by Magal’s recent disappointing results. We are confident that by our working together with Magal, we can help to bring such potential to fruition, and that Magal can achieve greater success and improve its performance. We do, however, feel strongly, based on our past interactions with Magal’s management and board of directors, that we will not succeed in helping to achieve such potential under Magal’s current board and management.

I do so wish that these kinds of documents were written in more precise English. My translation:

“Have you noticed that you guys have been sucking pondwater lately? If you like the way the company’s heading, by all means, take Kirsh’s money. If not, we’ve got a few bucks ourselves, but we’d kind of want to put our own people in there. You know. People who don’t suck.”

Regardless, things don’t appear to be going too well at Magal. I particularly like how Optex closes out its proposal: “Given the current state of affairs at Magal we believe that time is of the essence and that you should indicate as soon as possible whether you are interested in pursuing discussions on the proposed cooperation between our two companies.”

That pretty much says it all, right?

Actually, this letter from some shareholders says it all. It outlines why they think the current board stinks and the new board it proposes, with money from Plenus and Optex, is the way to go. It’s pretty entertaining reading for a stockholder letter.

My favorite part:

Wasteful expenditures/compensation: In September-2007, the current board led a disastrous $12-15M cash acquisition, publicly announcing “it would generate revenues and income in 2007 and beyond …”. Instead, it lost $11.9M and was written off 16 months later.

Immediately thereafter, despite Magal’s decline, the directors provided a lifetime compensation package and a lavish retirement package to the ex-chairman, and ex-CEO (his son-in-law), respectively. The present chairman is paid generously for a 50-60% time commitment, with significant other commitments, which prevent fulfillment of his Magal obligations. Despite Magal’s performance, in June 2010, he received compensation improvements.


Anyhoo, something to watch.