The Best Of Hedge Funder Dan Loeb's Notoriously Explicit Letters To CEOs

Dan Loeb Third PointDan Loeb

Photo: 1440wallstreet.com

Outspoken hedge fund manager Dan Loeb, the founder of Third Point LLC, has a reputation for his sharp tongue and strongly worded letters to companies.This week the Third Point chief, whose fund owns a 5% stake in Yahoo!, sent a letter to the board of directors about his discontent with what’s been happening at the company.

In his letters, Loeb often calls the CEOs the worst he’s ever seen and accuses them of “tooling around.”  But perhaps the best part is he usually signs them “Very truly yours, Daniel S. Loeb.”

We’ve compiled some of his best gems he’s sent to company execs in the past. [via danloebletters.blogspot]

(1/2) Letter to Pogo Producing -- December 1, 2006

In 2004, Loeb's Third Point had acquired 1.45 million shares of InterCept, or a 7.1% stake in the company. He then sent a letter to InterCept's chairman and CEO John Collins demanding that he resign, along with board members and sell the company.

He writes:

'Do not confuse our $22 million stake as a vote of confidence in the Company's senior management or its Board of Directors. On the contrary, it is our view that your record in management, acquisitions and corporate governance is among the worst that we have witnessed in our investment career. It is further apparent that the current Board of Directors represents the narrow interests of the management instead of the shareholder base as the law requires of fiduciaries.'

Source: Letter to InterCept

He writes:

'The Company's proxy statements provides us with our first indication that a 'good ol' boy' ('GOB') set of ethics prevails at the Company rather than standards dictated by fairness and good judgment. First, the Company employs the CEO's daughter, Denise, and her husband David Saylor, who received total compensation of $238,776 in 2003.'

Source: Letter to InterCept

(3/6) He also called out the CEO's son-in-law golfing during business hours.

He writes:

'I called Mr. Saylor last Friday at 4:00 p.m. at the Company's offices to learn more about the core product that he presumably sells. He had his calls forwarded to his cell phone since it was still business hours.'

'I identified myself as a shareholder interested in learning about the core product lines to which he replied that he could not speak as he was 'on the golf course.' I was not sure whether it was his relation with his father-in-law or the $238,776 salary that affords him the opportunity to work on his golf game during business hours.'

Source: Letter to InterCept

He writes:

'We also learned that the Company leases a private jet from a partnership controlled by CEO John Collins and fellow board member Glen W. Sturm (1), a partner at Nelson Mullins Riley & Scarborough LLP ('Nelson Mullins'), a firm that also received millions of dollars of legal fees from the Company over the past several years. This cozy relationship gave us pause and caused us to wonder how Mr. Sturm and the Nelson firm could represent the interests of shareholders given he gravy train of legal fees earned by the firm and the fact that Sturm and Collins could potentially be tooling around in a luxurious business jet, possibly sipping Cristal Champagne cocktails at shareholder expense.'

Source: Letter to InterCept

(5/6) Loeb said board member James Verbrugge was not qualified for the post.

He writes:

'Dr.' James Verbrugge, evidently a doctor of business at the Terry College of Business. I turned to the school's website for biographical background. For reasons that will be made apparent shortly, Dr. Verbrugge seems to be a living example of the old adage that 'those who can't do teach'.

He continues:

'I must admit that I was so distraught by our conversation that my temper got the best of me and loudly informed Dr. Verbrugge that I was flunking him as a director of the Company and that I planned to expel him from the board as soon as practicable, before unilaterally terminating the conversation.'

Source: Letter to InterCept

(6/6) He also slammed the company's iBill business for contributing to the pornography industry.

He writes:

'What is incomprehensible is why Intercept would choose to go into the euphemistically named 'merchant processing business' when in fact a substantial majority of the revenues of this business were derived from processing charges for adult pornography sites on the internet....'

Source: Letter to InterCept

(1/2) Letter to Ligand Pharmaceuticals -- September 23, 2005

On September 23, 2005, Loeb sent a letter to Ligand Pharmaceuticals' CEO David Robinson after acquiring 7 million shares, or a 9.5% stake in the company, telling him he feels the company is undervalued.

He writes:

'When one analyst queried about the reputation of the senior executives at the Company, he said that you are 'the worst CEO in biotech', and another analyst we spoke with attributed the significant valuation disparity between the current stock price and the much higher intrinsic value of the Company to the 'David Robinson Discount'.'

Source: Letter to Ligand

(2/3) What's more is Loeb felt Robinson should be booted.

He writes:

'I must wonder how in this day and age the Company's Board of Directors has not held you and Paul Maier responsible for your respective failures and shown you both the door long ago - accompanied by a well worn boot planted in the backside.'

Source: Letter to Ligand

(3/3) He called out the company for poor financial controls and investor relations.

He writes:

'Notwithstanding the sorry state of the Company, the apparent lack of financial controls, the consistently disappointing results and the abysmal investor relations, we estimate that the value of Ligand's assets far outstrip the current enterprise value of the Company, currently valued by the market at approximately $700 million on a fully-diluted basis.'

Source: Letter to Ligand

(1/6) Letter to Star Gas Partners -- February 14, 2005

In 2005, Loeb, whose Third Point held a 6% stake in Star Gas, sent a letter to Irik P. Sevin, the company's president and CEO.

He writes:

'Sadly, your ineptitude is not limited to your failure to communicate with bond and unit holders. A review of your record reveals years of destruction and strategic blunders which have led us to dub you one of the most dangerous and incompetent executives in America.'

Source: Letter to Star Gas

(2/6) He slammed Star Gas's CEO for having a scholarship in his name at Cornell.

He writes:

'I was amused to learn, in the course of our investigation, that at Cornell University there is an 'Irik Sevin Scholarship.' One can only pity the poor student who suffers the indignity of attaching your name to his academic record.'

Source: Letter to Star Gas

He writes:

'Furthermore, given the magnitude of your salary, perhaps you can explain why the Company paid $41,153 for your professional fees in 2004 and why the Company is paying $9,328 for personal use of company owned vehicles. We questioned Mr. Trauber about the nature of this expense, and I was frankly curious about what kind of luxury vehicle you were tooling around in (or is it chauffeured?). He told us that you drive a 12 year old vehicle. If that is so, then how is it possible that the company is spending so much money on the personal use of a vehicle that is 12 years old? Additionally, your personal use of a Company car appears to violate the Company's Code of Conduct and ethics which states that 'All Company assets (e.g. phones, computers, etc) should be used for legitimate business purposes.''

Source: Letter to Star Gas

(4/6) Loeb called out Sevin for having is elderly mother serving on the company's board.

He writes:

'The Company's Code of Conduct and Ethics also clearly states under the section on Conflicts of Interest, that A 'conflict occurs when an individual's private interest interferes or even appears to interfere in any way with the person's professional relationships and/or the interests of SGP...Likewise, you are conflicted if you or a member of your family receives personal benefits as a result of your position in SGP...'

'By this clearly stated policy, how is it possible that you selected your elderly 78-year old mum to serve on the Company's Board of Directors and as a full-time employee providing employee and unitholder services? We further wonder under what theory of corporate governance does one's mum sit on a Company board. Should you be found derelict in the performance of your executive duties, as we believe is the case, we do not believe your mum is the right person to fire you from your job.... We insist that your mum resign immediately from the Company's board of directors.'

Source: Letter to Star Gas

He writes:

'Irik, at this point, the junior subordinated units that you hold are completely out of the money and hold little potential for receiving any future value. It seems that Star Gas can only serve as your personal 'honey pot' from which to extract salary for yourself and family members, fees for your cronies and to insulate you from the numerous lawsuits that you personally face due to your prior alleged fabrications, misstatements and broken promises'

(6/6) He called for Sevin, who he has known for a long time, to step down and go to his Hamptons mansion.

He writes:

'I have known you personally for many years and thus what I am about to say may seem harsh, but is said with some authority. It is time for you to step down from your role as CEO and director so that you can do what you do best: retreat to your waterfront mansion in the Hamptons where you can play tennis and hobnob with your fellow socialites.'

Source: Letter to Star Gas

Letter to AEP Industries -- April 2006

In 2006, Loeb sent a letter to plastic-film manufacturer AEP's CEO Brendan Barba to buyback 2 million shares for $36 or sell itself.

He writes:

'Brendan, it's time for you to put your money where your mouth is. If you are sincere in your statement that a premium bid for the company is not worthy of discussion, then we must insist that you demonstrate your conviction by acquiring shares.'

Source: MarketWatch

(1/2) Letter to Pogo Producing -- December 1, 2006

In 2006, Loeb ripped the chairman, president and CEO of Pogo Producing, Paul Van Wagenen, on his poor management.

He writes:

'We approached the meeting with an open mind and the sincere hope that you would answer our questions in a way that might help dispel your poor reputation among your peers, energy analysts and investors. While the meeting reinforced our positive view of the Company's underlying asset value, it also contributed to investor concerns that Pogo's management has failed to pursue cohesive exploration, development, acquisition and financial plans.'

Source: Letter to Pogo

(2/2) Loeb then called for Van Wagenen to step down from his post.

He writes:

'In the one and a half decades you have run Pogo, shareholders have suffered subpar returns. Your track record is long and meager, and it is time for change. Accordingly, we demand that the Board immediately initiate a process to sell the Company in whole or several parts to the highest bidder or bidders. To underscore our commitment to this process, we are advising you today that we intend to conduct a proxy contest at your 2007 annual meeting of shareholders that will allow us to elect new directors comprising a majority of the Company's board of directors.'

Source: Letter to Pogo

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