Maguire Asset Management Applauds The Board Of U.S. Auto Parts For Seeking To
Sell The AutoMD Business
Announces Intent to Nominate Four Highly Qualified Director Candidates for
Election at the Company's 2014 Annual Meeting
LAGUNA BEACH, Calif., Dec. 5, 2013
LAGUNA BEACH, Calif., Dec. 5, 2013 /PRNewswire/ --Maguire Asset Management
today delivered a letter to the Board of Directors of U.S. Auto Parts Network,
Inc. (NASDAQ: PRTS) praising them for following up on Maguire's recommendation
to find a buyer for the AutoMD business and removing the threat of NASDAQ
de-listing due to lack of Independent Board members.
Commenting on the recent Board actions Timothy Maguire, Managing Partner of
Maguire Asset Management stated, "We are supportive of the Board'sdecision to
sell AutoMD and believe the sale of this division will unlock significant
shareholder value." Maguire continued, "We encourage the Board to run a
robust process with the help of a nationally-recognized investment bank and
expect full transparency in the divestment of this asset."
The full text of the letter follows:
December 5, 2013
The Board of Directors
U.S. Auto Parts Network, Inc.
16941 Keegan Avenue
Carson, CA 90746
Dear Members of the Board of Directors:
Maguire Asset Management, LLC ("we" or "us") continue to own 5.3% of the
outstanding shares of US Auto Parts Network, Inc. ("US Auto Parts" or the
"Company"), making us one of the largest independent shareholders of the
Company. We are writing today to follow up on the letter we sent to you on
September 24, 2013 when we offered several thoughtful suggestions about how to
reverse the Company's underperforming stock price. Over two months have now
passed and we are still awaiting (along with the rest of your investors) a
response from this Board.
As you well know, since our initial investment in the Company several months
ago, we have made every effort to engage with Chairman Majteles and with
management in a productive manner, often times reaching out privately to get a
better sense of how the business is being governed and managed, and offering
suggestions that we believe can build value and regain investor confidence.
To that end, we appreciate the time CEO Shane Evangelist and CFO David Robson
spent with us in early November at the SEMA trade show in Las Vegas. While
the meeting was cordial and professional we were disappointed that none of the
issues set forth in our September letter to you were adequately addressed.
Unfortunately, it has become abundantly clear to us that our desire for
constructive discourse has not been equally embraced by this board. To the
contrary, for example, during one exchange with Robert Majteles our probing
questions were strategically deflected by way of a dismissing email
"Excellent questions [Tim]... As you know, public companies are not allowed
to discuss their companies privately in these ways. We are transparent for
all ... Our approach is to receive questions and find appropriate, full
disclosure for all opportunities to share with all investors. Quarterly calls
and so on."
This is why we were shocked when management blocked us from asking questions
during the Q&A session of the Company's third quarter conference call on
November 4^th. We were further astonished when management told us during our
Las Vegas meeting that the Company has adopted a policy of not speaking with
shareholders on quarterly conference calls.
We can only assume that the full Board is not aware of this indignation for
collaborative investor relations. And now that you are aware of this
irresponsible behavior we call upon each of you to honor your duty as
corporate fiduciaries by reopening the doors of shareholder transparency while
establishing a new era of management accountability.
Until then, we are unfortunately left with no alternative other than to send
this public letter requesting once again that you update shareholders on the
status of the turnaround, the sale of AutoMD, and the long-needed upgrades to
board membership and corporate governance reform.
THE SALE OF THE COMPANY'S AUTOMD BUSINESS
WILL CREATE A MULTIPLIER EFFECT FOR SHARE VALUE
Through our continued market research we have recently learned that US Auto
Parts is finally in the process of actively seeking a buyer for AutoMD. We
are pleased with this development and applaud you for following-up on our
recommendation to do so. We now ask that you immediately confirm for
shareholders that a committee of independent board members is overseeing a
robust sale process with the help of a nationally-recognized investment
banking advisor. We strongly believe that delegating this critical
responsibility to Shane Evangelist – who is too attached to AutoMD to
effectively direct its sale without a conflict, will lead to a
less-than-desirable outcome for shareholders. Instead, we recommend that the
responsibility to manage the sale be led by professionals, supported by
management and supervised by engaged board members with M&A expertise.
Despite the fact that AutoMD has been a drain on Company resources for several
years now, we believe there is tremendous value inherent in its technology and
intellectual property (such as DIY How-To Guides, a nationwide repair shop
locator, a repair cost estimator, etc…) that the right strategic buyer or
investment group will find very appealing.
By employing a properly managed sale process we believe AutoMD can fetch
$10-$15 million. Our valuation is based on the fact that there is clearly a
very attractive investment environment for this type of start-up. This is
illustrated nicely by the $20 million strategic investment into RepairPal.com
led by Cars.com and Castrol, the multi-million dollar investment into
BodyShopBids.com led by the co-founders of Groupon, and OpenBay.com's October
announcement that it has received start-up funding from venture capital
luminaries Google Ventures and Andreessen Horowitz - the entrepreneurs behind
the first Internet browser.
The benefits from AutoMD's sale can be far-reaching as it has the potential to
become a major catalyst for improving the Company's stock price. At a
minimum, we believe the divestiture will manifest itself in annual savings
equal to $4 million. These savings should drop straight to the bottom line
and go a long way toward narrowing the chasm that currently exists between
profit and loss. In a more positive scenario, the Company saves millions
annually and uses the sale proceeds to strengthen the Company's balance sheet,
which in turn will reduce interest expense while empowering management to
negotiate improved vendor payment terms and conditions.
The sale of AutoMD, coupled with management's ongoing initiative to sell
higher-margin private-label products, will ultimately lead to improved cash
flow and positive earnings per share. With this new story in hand, management
can reengage with the investment community through a multi-city roadshow in an
effort to attract a new set of high-caliber institutional investors who share
our enthusiasm for the Company's long-term value potential.
CORPORATE GOVERNANCE ENHANCEMENTS ARE LONG OVERDUE
We'd also like to take this opportunity to comment on the Company's recently
announced Board appointments. While we are pleased the Company has finally
removed the long standing threat of NASDAQ de-listing due to a lack of
independence in the boardroom, we question the efficacy of the new independent
director selection process since at least one of these two appointees worked
for the CEO not too long ago at the now defunct Blockbuster Online.
Despite the Company's claim that the Board is now comprised of five
Independent Directors on an eight-person board, shareholders know better.
We are all well aware that Oak Investment Partners owns approximately 28% of
US Auto Parts and, as a result, Fred Harman - Oak's representative on the
Board, cannot be considered an Independent Director. How then can Robert
Majteles (Chairman of the Board since 2007 and current member of the Audit
Committee and Compensation Committee), who joined Oak Investment Partners as a
Venture Partner in 2011, be considered independent by this Board? Robert
Majteles is obviously not an Independent Director and we demand the Board
immediately remove him as Chairman and begin a search to replace him as a
Director candidate for election in 2014.
For far too long US Auto Parts has been mired with poor performance due to
questionable governance practices, insufficient management accountability,
unearned compensation arrangements and a lack of independent leadership in the
boardroom. This Board is in dire need of change and a complete overhaul is
It is our understanding that five Directors will be elected into office at the
Company's next Annual Meeting, including three incumbent Directors and two
Directors appointed in November. As such, we intend to provide shareholders
with the opportunity to elect four new, highly-qualified, truly Independent
Directors (we will not attempt to replace the Company's co-founder Sol
Khazani). Our seasoned candidates will bring a new and refreshing perspective
onto the Board by drawing on years of relevant industry insight and hard
earned experiences creating value in public and privately-held companies
worldwide. We look forward to the opportunity to formally deliver our
nomination notice and to present these candidates for election when the window
to nominate Directors opens in early April 2014.
In the meantime, we seriously caution you against undertaking any actions that
can be construed as board entrenchment tactics or unjustly rewarding
management for its continued poor performance. Accordingly, we hereby reserve
the right to legally challenge the implementation of any such provision
effected without shareholder ratification or before shareholders are entitled
to vote at the next annual meeting of shareholders, which is expected to take
place in mid-July 2014. These maneuvers may include, but are not limited to,
the Board's decision to (i) alter existing senior management employment
contracts, (ii) adopt any new change of control provisions which will result
in additional one-time payments to management or the board in the event new
directors are elected by shareholders, (iii) implement a poison pill or poison
debt defense mechanism without shareholder consent (iv) disburse any bonus
payments to senior management for fiscal year-end 2013, (v) amend the
Company's By-Laws without shareholder consent, (vi) issue new shares without
shareholder approval, and (vii) delay or postpone the Company's 2014 annual
As always, we remain open to discussing with you ways to improve Company
performance, and remain amenable to reaching a mutually agreeable resolution
to reconstitute the Board in a way that benefits all shareholders. However,
if you chose not to continue to engage with us constructively, we are fully
prepared to solicit the support of our fellow shareholders to elect four new
representatives at the 2014 Annual Meeting.
Maguire Asset Management
SOURCE Maguire Asset Management
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