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July 01, 2003 at 08:00 PM
NEW YORK (HedgeWorld.com)–Hedge fund manager Greenlight Capital Inc. is attempting to persuade the shareholders of Mercer International Inc., a European pulp and paper manufacturing company with a U.S. office in Seattle, to vote for its nominees at Mercer’s upcoming annual meeting.
Greenlight filed a preliminary proxy statement with the Securities and Exchange Commission on June 20, nominating Guy Adams and Saul Diamond, both executives of private equity concerns, for the Mercer board of trustees. Two members of the seven-member board are scheduled for election at the July 15 meeting.
Mercer “has excellent assets, but suffers significant deficiencies in corporate governance,” according to Greenlight’s proxy filing. The hedge fund firm is known for short selling companies it sees as having managerial or accounting problems .
There is a need for new trustees because the Mercer board is in disarray and has not been properly supervising top managers, Greenlight argues. The board has not met once in the past three years and has been a revolving door, it claims. Among the red flags Greenlight points to is that a former chief financial officer and trustee of Mercer is under criminal investigation in Germany.
Greenlight alleges that the management has engaged in transactions that are not in the best interests of shareholders, such as the purchase of Landqart AG, a Swiss mill business, and that Chief Executive Jimmy Lee has conflicts of interest, such as being a director at a subsidiary of MFC Bancorp, which is involved in the Landqart deal.
The company has performed poorly because Mercer’s board “blatantly ignored basic corporate governance principles designed to protect shareholders,” the hedge fund states. Mercer’s five-year total return for the period ending Dec. 31, 2002, was negative 37%. Mercer stock is trading at its lowest historical price range.
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