Marvell Agrees to Reshape Board With Activist Starboardby
Earlier this month company said founders will step down
Leadership changes clear way to restructuring or sale
Marvell Technology Group agreed to reshape its board, giving in to demands from activist shareholder Starboard Value LP while the company grapples with the fallout from declining sales and accounting missteps.
The chipmaker will add five new board members, including Peter Feld, a managing member of Starboard, Richard Hill and Oleg Khaykin, it said in a statement Wednesday. Starboard will choose another director soon, and Marvell will elect Robert Switz, non-executive chairman at Micron Technology Inc. The leadership change could speed up the company’s restructuring or the sale of some or all of its businesses.
Starboard took a 6.7 percent stake in the company in February, seeking changes to the longtime management and the divestment of some business lines. Marvell said earlier this month that Chief Executive Officer Sehat Sutardja and his wife, President Weili Dai, who founded the company in 1995, will leave their executive positions after an internal investigation faulted a “tone at the top” for pressuring sales staff to meet targets. Marvell is seeking a new CEO, and has been said to be open to a sale in the midst of its turmoil.
"We believe these people will help to transform the company, first driving for significant cuts to opex, and ultimately potentially selling certain businesses or even breaking up the entire company," Cowen & Co. analysts, led by Timothy Arcuri, said in a note, referring to the new directors.
Marvell wasn’t the only company agreeing to a compromise with Starboard over board seats in order to avoid a proxy fight. Yahoo! Inc. Wednesday agreed to let Starboard name four board members to its board, reaching an agreement after the activist investor initially proposed an entirely new slate of directors, including replacing CEO Marissa Mayer.
Last year Marvell announced an investigation into its accounting and internal controls. In March, it said the audit committee found no evidence of fraud, but concluded that some revenue had been recognized prematurely and that management issues included a failure to raise concerns about Sutardja’s assertion of personal ownership of patents.
The company, whose main facility is in Santa Clara, California, has been run by three members of one family, with two of them, Sehat Sutardja and his brother Pantas, owning a combined 16 percent of its outstanding stock, according to filings.
In October, PricewaterhouseCoopers LLP resigned as Marvell’s external accounting firm.
"Marvell has had a turbulent last year," said Jon Erensen, an analyst at Gartner. "It’s clear that it was time to see some changes. With all the accounting issues, speculation in terms of what’s going on with the revenue, the issues with the mobile platform business -- all that uncertainty is a problem for both employees and customers."
Marvell’s litany of issues also includes delayed filings to the Securities and Exchange Commission, and a lost patent dispute with Carnegie Mellon University that cost the company $750 million.
One of the challenges Marvell will face as it undergoes necessary changes is that customers may take a wait-and-see approach until the leadership transition is completed, according to Anand Srinivasan, an analyst at Bloomberg Intelligence.
"The risk is that customers are going to look at the company and say ’I’ll come back to it after the mess is cleaned up,’" he said. "If collectively customers say that, they have a problem."
Exacerbating the challenge is the concentration of Marvell’s customers, the analyst said. According to data compiled by Bloomberg, 44 percent of the chipmaker’s revenue comes from three companies -- Western Digital Corp., Seagate Technology Plc. and WT Microelectronics Co.
"It’s a step in the right direction,” Srinivasan said. “Some procedures, such as auditing, have to be tightened and enhanced so that people can focus on the business. But you can’t do all of that until leadership is in place and the processes have been fixed. This could take several months."