Leonard Rosenthal, Ph.D.
106 Walnut Hill Road
Newton, MA 02461
April 9, 2007
Delaware Court of
New Castle County
500 North King Street
Wilmington, DE 19801
RE: Civil Action No.
I am writing to the
court both as a small shareholder in Crowley Maritime and as a finance
professor to object to the settlement between Franklin et. al and Crowley
While I read in the
Purchase Offer that someone wishing to present objections should appear in
person, I ask the Court to consider my objections without my being there.
I cannot travel to Delaware as I am still recovering from recent shoulder
I ask you to consider my
objection as being from someone representative of individual shareholders
as well as from someone with expertise in the valuation of corporate
stock. I have a M.B.A and a Ph.D. in finance, and I am currently
Professor of Finance at Bentley College in Waltham, Massachusetts. I have
been teaching graduate and undergraduate courses which involve equity
valuation for over thirty years, and have written on relevant subjects.
Based on this experience and the information provided by Crowley and the
investment banker hired to provide an opinion about the fairness of the
offer, I believe that the proposed settlement is not in the best interest
of the class of shareholders represented by the plaintiffs for the
The lawsuit brought by plaintiffs stated that it was intended to
protect the rights of minority shareholders in relation to claims that
Thomas Crowley was using company resources to enrich himself at the
expense of the other shareholders. Instead of recovering the funds or
otherwise addressing the claims of the lawsuit, the proposed settlement
forces the minority shareholders to sell out at a price which
significantly undervalues the shares.
The plaintiff’s counsel, according to his own statement, did
nothing to investigate the fairness of the buyout offer, relying instead
on the fairness opinion of an investment bank hired by the people he was
suing. There is clearly no basis for assuming that the “special
committee” of the board of directors can be considered truly independent,
since its members appear to be associated with the controlling shareholder
who selected and elected them. The opining bank was also selected in a
process that, based on Crowley’s own report, raises even more questions
about dutiful process and their obvious incentives, including a relatively
high $500,000 fee, to accommodate the bidder’s interest in supporting as
low a possible price to buy out the minority holders.
The bank’s opinion does not satisfy professional standards. The
four widely used methodologies they selected to support the price were
either incorrectly or inappropriately applied, and they completely ignored
what most experts would consider to be the most reliable methodology for a
thinly traded stock in a cyclical industry.
These are some of the
reasons why the opinion cannot be relied upon:
Two of methodologies on which the opinion is based, comparable
companies and comparable transactions, actually show that the purchaser is
paying too low a price
Based on a
comparable group of companies, and using both optimistic and
pessimistic financial scenarios provided by Crowley, the bank looked at 4
valuation measures for the most recent fiscal year and 3 for next year.
For the 2006, only 2 were less than the median of the comparable firms.
For 2007, all 3 were less than the median in both the optimistic and
Based on a
comparable group of transactions chosen by the bank to involve a
similar business as Crowley’s and again using both optimitistic and
pessimistic scenarios, the bank did a similar analysis as above. For the
latest twelve months, all but one of the measures was less than the median
of the other firms. For next twelve months, all 3 were less than the
median in both the optimistic and pessimistic cases.
For another methodology, discounted cash flow, the bank has
not provided enough information to verify the results,
the significant assumptions which have been stated are lacking apparent
The fourth methodology used by the bank, premiums paid relative
to previous prices, is irrelevant for a stock that trades as
infrequently as Crowley.
The widely used measure ignored by the bank in its analysis is the
ratio of current price to book value. The comparable group of
companies – using the same companies selected by the bank – have a mean
current price to book ratio of 2.04. Based on this, Crowley stock is
worth between $4,851 ($2,378 X 2) and $5,826 ($2,856 X 2) per share using
fully diluted and undiluted book value, respectively.
I am of course sending
overnight copies of my objections to both counsels according to the
instructions in the court papers.
cc. R. Bruce McNew,
TAYLOR & McNEW LLP,
Jon E. Abramczyk,
MORRIS, NICHOLS, ARSHT & TUNNELL, LLP