Investor scolds Tessco, advises it to hire bank to review deals

March 05, 2010|By Gus G. Sentementes |

A battle is brewing between Hunt Valley's Tessco Technologies Inc. and its largest independent shareholder – and in some ways, it's already gotten personal.

Discovery Group, a Chicago-based investment firm that owns 14.2 percent of Tessco's stock, said that it was contacted by several companies that failed to reach Tessco's leadership to discuss a possible acquisition.

So Discovery went public with its concerns Friday, revealing it had advised the company in a letter on Thursday that it should hire an investment bank to review any potential deals.

Two years ago, Tessco, which makes products for wireless systems, dealt with a potential suitor by adopting a so-called "poison pill" plan that would make it difficult and expensive for the company to be the subject of a takeover. In its critique of Tessco on Friday, Discovery pointed to that plan as one of several corporate governance flaws at the company.

In the letter, Discovery also blasted the company's chief executive officer, Robert B. Barnhill Jr., for having a salary of $1.6 million, which is "egregiously higher" than the median CEO compensation of $625,000 for companies that are Tessco's size. And Discovery criticized the company for employing Barnhill's wife and son and for paying its board of directors "substantially higher" than directors at similarly-sized companies.

"We're a pretty conservative group," said Dan Donoghue, managing partner at Discovery. "This is us going postal. We're frustrated and we're kind of powerless, and so are the rest of the public shareholders."

Tessco did not publicly respond to Discovery's statement, and a company official did not return a phone call seeking comment.

Anil Doradla, an analyst with William Blair & Co. in Chicago, said Discovery believes the true potential of Tessco could be unlocked if it's part of a larger company. But the poison pill plan would prevent an unwanted acquisition, he said.

"Nothing much can be achieved until the poison pill is removed, at least from an acquisition perspective," Doradla said

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