Investor unhappy with Tessco

Shareholder advises sale of technology company is best

March 06, 2010|By Gus G. Sentementes |

A battle is brewing between Hunt Valley's Tessco Technologies Inc. and its largest outside 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 it has been contacted by several companies that failed to get a response from 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.

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

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

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.

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.

Shares of Tessco, which has a market value of about $100 million, rose 6 percent to close at $21.24 on Friday.

Discovery contends that if the company were to change hands, its shares could be worth $30 to $36.

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