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Mosaid rejects hedge fund demand that the company be sold promptly

Date: Thursday, August 24, 2006
Author: Rita Trichur, Canadian Press

TORONTO (CP) - Memory-chip maker Mosaid Technologies Inc. (TSX:MSD) has rejected a dissenting U.S. shareholder's demand that it immediately put itself on the auction block and warned Wednesday it's ready for a fight if that's what Loeb Partners Corp. wants.

In a letter to Loeb Partners, a New York City hedge fund that owns about eight per cent of Mosaid's stock, the company's board said a "prompt sale of the company ... forced by a publicly dissenting shareholder demand and in a publicly disclosed process, is not in the best interest of our shareholders."

The letter was in response to a Loeb Partners letter last week asserting that Mosaid's senior management has resisted its plan to maximize share value and calling on the current board to put the company up for speedy sale or face a shareholder revolt.

While Mosaid is open to a possible sale, that is only one of a number of options being evaluated by a special committee of its board, wrote director Thomas Csathy, and the Ottawa-based firm is "prepared, if necessary, to engage in a proxy contest to confirm the support of our shareholders."

Michael Emanuel, a spokesman for Loeb Partners, declined comment. But a source close to the situation confirmed late Wednesday that Loeb recently stepped up its stake in Mosaid to eight per cent, from six, and is now mulling whether to propose a slate of directors for election at Mosaid's annual meeting in Ottawa on Sept. 22 or at a special meeting at a later date.

Mosaid's other minority shareholders have "urged them to continue," he said, but declined to specify which ones.

Loeb Partners has said that Mosaid's stock is undervalued by capital markets and would be worth more if its various business units were valued separately.

For its part, Mosaid has already proposed a roster of candidates to stand for election to its board of directors on Sept. 22.

"At this point, it is business as usual," said Mosaid spokesman Michael Salter. "It is really difficult to speculate on what will happen next."

Berl Nadler, a partner with Davies Ward Phillips & Vineberg LLP who represented New York-based Baker Brothers Advisors in their successful proxy fight with pharmaceutical firm AnorMed Inc. (TSX:AOM), agreed that Loeb Partners will likely nominate its own directors.

"It's a way of getting the board's attention," said Nadler. "Presumably, they wouldn't have threatened this if they didn't think they had a shot at effecting change."

Proxy fights are less common in Canada than the United States, but Nadler said that trend is changing.

In the case of AnorMed, the Baker Brothers - its largest shareholder - successfully led a move in April to replace the board at a special meeting of shareholders after claiming the previous directors had failed "to create shareholder value or to provide direction to management."

Loeb Partners, however, is not Mosaid's largest shareholder. That distinction goes to Lincluden Management Ltd. which holds nearly nine per cent of the firm's stock, according to data provided by Thomson Financial.

Lincluden executives, however, did not return phone calls seeking comment on the dispute.

Mosaid, which employs 115 people with most of its operations in Ottawa, has had a number of high-profile legal victories in defending its patents through the courts and licensing its intellectual property to global semiconductor giants such as South Korea's Samsung and Hynix and Germany's Infineon.

"We would very much like to avoid a highly disruptive and costly proxy battle, with the attendant real risk of value erosion, but we are determined to act in the best interests of our company and our shareholders," Csathy wrote.

The company's strongly-worded response comes one day before Mosaid reports its fiscal first-quarter results. Analysts are expecting, on average, earnings per share of 60 cents - a 58 per cent improvement over last year.

Mosaid's stock gained 14 cents to close at $26.25 on the Toronto Stock Exchange.