Battle over Magal Securities Systems heats up

Group of dissident shareholders prepare for a hostile takeover ahead of an extraordinary shareholder meeting.

By SHARON WROBEL
August 6, 2010 06:15
3 minute read.
Trader watches the stocks

Trader watches the stocks 311. (photo credit: AP)

The battle over the control of Magal Security Systems Ltd. is intensifying as a group of dissident shareholders prepare for a hostile takeover ahead of an extraordinary shareholder meeting next Thursday.

Former Magal executive Yoav Stern is leading the group of dissident shareholders seeking the takeover. He is being accused of attempting to extort Nathan Kirsh, who is the company’s biggest shareholder, with a 24 percent stake.

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In a letter sent by Kirsh’s attorney, Avigdor Klagsbald, Stern is quoted as requesting from Kirsh in a threatening email to abstain from the shareholder vote.

“I think you should abstain from a vote in this upcoming [meeting],” the e-mail says, according to Klagsbald’s letter.

“This will be an elegant solution for all, before it all gets too ‘muddy’... I think it is highly unlikely that you would win, but if you do, your mess will be a big one.”

In June, a group of shareholders, including three US investment funds that together own approximately 17% of the outstanding shares of the company, requested to convene an extraordinary general meeting with the aim of replacing the majority of the company’s board of directors.

The dissident shareholders said Kirsh’s allegations, as represented in Klagsbald’s letter, were an attempt by the company’s management to mislead shareholders ahead of the vote.

“The accusations are a pathetic attempt to stitch together words and parts of sentences taken out of context from straightforward business correspondence between Kirsh and Stern, in which Stern was responding to Kirsh’s attempt to convince him to withdraw from the proposal to replace the board of directors,” according to a statement by the US investment funds.

The funds, Diker Management, Clough Capital Partners and Prescott Group Capital Management, are seeking to elect five individuals to the board and to replace all of the current board members other than Kirsh and the company’s two outside directors who are appointed in accordance with Israeli law.

The nominees under proposal are Stern; Israel Shafir, a former Magal executive; Avihu Ben- Nun, a former chairman of General Motors R&D center in Israel; Zivi Nedivi, a former CEO of Axiom Investment Advisors; and Ami Amir, general partner at Partech International.

“I urge you not to support the proposal and to give [management] and its team the opportunity to bring Magal back to profitability, which I am confident they will achieve,” Kirsh said in a statement to shareholders.

Magal Security Systems was founded in 1970 by Israel Aerospace Industries (formerly Israel Aircraft Aerospace Industries) and is a global provider of security, safety and site-management solutions and products.

In 1984, Kirsh acquired a majority interest in the company, purchasing 74% of the outstanding shares from IAI. In the first quarter of the year, the company generated revenues of $9.8 million and incurred a net loss of $2.4m.

Stern was Magal’s interim president beginning in November 2008 and interim president and CEO from February 2009 until July 2009.

However, after a trial period, it was generally felt that based on his managerial style it would not be in the company’s best interests to make his appointment permanent, according to Kirsh.

Stern was accused of improperly terminating a number of senior employees and causing an “almost irreparable damage” in the morale of the remaining employees.

“During his term in office the employees operated in a hostile environment and were terrified by his managerial style,” the company said in a statement.

“Suppliers were insulted, and the relationships of the company with its business partners were harmed as a result of his arrogant and erratic behavior.”

Stern is now being accused of improperly using internal company information, thereby infringing contractual agreements.

Stern was not available for comment when contacted by The Jerusalem Post.


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