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Zarlink CEO vs. hedge fund fight heats up

Date: Wednesday, July 9, 2008
Author: Bolaji Ojo, EETimes.com

Zarlink Semiconductor has confirmed its guidance for the fiscal 2009 first quarter, moving swiftly to deflect criticisms about its financial performance as the IC vendor tries to swing shareholders into its corner in a fractious fight against a group of dissident investors.

The Canadian communications IC manufacturer said in a statement that it sees fiscal 2009 first quarter revenue rising up to 11 percent on a sequential basis, to a range of $59 million to $61 million, up from $54.8 million in the prior quarter.

The company also said it expects to break even during the three-month period versus a loss of $20 million in the preceding quarter.

"We have made progress in our cost-reduction efforts and are now significantly better than the operating expense metrics of comparable companies in our sector," said Kirk Mandy, president and CEO of Zarlink in a statement. "We expect to continue these efficiency improvements in order to drive further operating margin improvements and profitability."

Ottawa-based Zarlink is facing a revolt from a group of fund investors who have called for the company to fire CEO Mandy, the chairman and up to five members of the board of directors.

The first salvo in the struggle for control of the company will be fired July 23 when Zarlink holds its annual shareholders meeting at which shareholders would vote for a slate of directors.

On July 2, Scott Leckie, a fund manager with Canada's National Bank Financial informed Zarlink's management in a letter that it had secured a 5.2 percent stake in the company and that it would be seeking the dismissal of the CEO and other directors. Leckie's group accused Zarlink's top executives of mismanaging the company.

The group threatened to launch a proxy fight if Zarlink's management failed to agree with its demands. Zarlink said Leckie leaked the letter to the media even while calling for discussions with the management.

In its statement urging shareholders to vote against the dissident investors, Zarlink said "the hedge fund's call for the removal of Zarlink's CEO and chairman of the board and five directors would have immediate and lasting negative consequences for the company's growth prospects for the future."

It added that the request would be "highly disruptive" and would further increase the struggling company's overall costs at a time it is trying to reorganize operations to lower expenses and focus on core markets.

Zarlink has struggled since being spun off by Mitel Corp. in 2000 and its stock price has remained depressed as the management tried to revamp the company and return it to profitability.