Control of AAI's parent at stake

Dissident director issues ultimatum, lists demands

Ouster of chairman is sought

April 05, 2003|By Paul Adams | Paul Adams,SUN STAFF

A dissident director of United Industrial Corp., parent of AAI Corp. of Hunt Valley, has threatened to wage a battle for control unless management moves more aggressively to sell UIC and announce a replacement for its retiring chief executive, among other things.

Activist investor Warren G. Lichtenstein said in a letter filed with the Securities and Exchange Commission that he will nominate two new directors for the board of United Industrial Corp. at its annual meeting in October, unless management meets a long list of demands, including the ouster of its 82- year-old chairman.

If successful, Lichtenstein would control four of the company's six board seats.

Lichtenstein controls 12 percent of United Industrial's shares and has used that leverage to win seats on the board for himself and a partner, who has helped pressure management to sell the company to the highest bidder.

According to Lichtenstein's letter, Richard R. Erkeneff, United Industrial's chief executive, plans to retire at the end of July. Lichtenstein called on the board to name Frederick M. Strader, president and chief operating officer of AAI, as his replacement.

A spokeswoman for the company declined to comment on the letter or the date of Erkeneff's retirement. The company's annual report states that Erkeneff's employment contract ends July 31.

United Industrial hired an investment bank in 2001 to help sell the company, but Lichtenstein said management is moving too slowly to make changes that would help bring about a deal.

"The controlling members of the board simply have not responded positively to our efforts and remain ... satisfied with their `country club like decisions' while resisting our efforts to foster material and long overdue changes which would help maximize stockholder value," Lichtenstein said in the letter addressed to board members.

Lichtenstein did not respond to messages left at his office yesterday.

United Industrial has been trying since the late 1990s to sell its smaller businesses to focus on running AAI, which accounts for nearly 90 percent of its sales.

AAI, which employs about 900 in Maryland, makes aerial drones and training simulators for the military. As he acquired more shares, Lichtenstein began to pressure the board to sell the whole company.

The sale has been hampered by news that a United Industrial subsidiary, Detroit Stoker Co., faces hundreds of outstanding asbestos lawsuits. The company's fourth-quarter results included a pre-tax charge of $11.5 million related to the suits.

A prominent corporate raider in the small-cap market, Lichtenstein has a reputation for investing in companies and then breaking them apart. He owns large stakes in numerous companies and serves on several boards of directors.

When management resists his moves, he often will resort to writing hostile letters that help fuel shareholder resentment once they become part of the public record.

His latest letter is brutal in its criticism of United Industrial's board. His harshest words are reserved for Chairman Harold S. Gelb, whom Lichtenstein said has "failed miserably over a considerable period of time to discharge the responsibilities of the chairman of the board."

Short of immediately selling the company or its under performing subsidiaries, Lichtenstein calls on management to cut costs by closing United Industrial's Manhattan headquarters and merging it with AAI facilities in Hunt Valley.

Among other things, he also said the company should hold its annual meeting in June, rather than October.

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