Chemed
Corporation Purchases a Second Corporate Jet - MMI Investments Demands an End to
Chemed Corporate Largesse
Thursday
April 2, 2009, 12:45 pm EDT
The
MMI Director Nominees Will Bring Much-Needed Independence and Stockholder
Representation to the Chemed Board
NEW YORK,
April 2 /PRNewswire/ -- MMI Investments, L.P. (“MMI”) today announced that it
has sent a letter to the newly-elected Chairman of Chemed Corporation
(“Chemed”), George J. Walsh III, demanding that Chairman Walsh promptly
dismantle Chemed’s culture of corporate largesse, as embodied in Chemed’s
November 2008 purchase of a corporate jet for nearly $9 million.
MMI
President Clay B. Lifflander stated: “This November when many of America’s
largest companies were being publicly excoriated for wasting stockholder capital
on corporate jets, Chemed’s management and board decided to double its own
fleet, acquiring a second 15-seat Hawker private jet. Yet even though this
purchase accounted for more than 36% of 2008 capital expenditures for the whole
company, there was no mention of it on the fourth quarter conference call and no
disclosure in the company’s 2008 10K as to why 2008 corporate level capital
expenditures were nearly 50 and 70 times 2007 and 2006 levels,
respectively.”
“MMI
nominated a highly qualified slate of independent director candidates for the
Chemed Board because of entrenchment such as this. We fear that Chemed’s
management and Board simply do not understand that they are merely stewards of
stockholder capital -- not owners of it.”
The full
text of MMI’s letter to Chairman Walsh follows:
April 2,
2009
Chairman
George J. Walsh III
Chemed
Corporation
2600
Chemed Center
255 East
Fifth Street
Cincinnati,
Ohio 45202-4726
Dear
Chairman Walsh,
As a
major long-term stockholder in Chemed Corporation (“Chemed”), MMI Investments,
L.P. (“MMI”) believes that one of your first priorities as Chemed’s new Chairman
should be the dismantling of Chemed’s culture of corporate largesse. The most
egregious example (of which we are aware) is Chemed’s aircraft subsidiary, Jet
Resources Inc., which expanded its fleet in November 2008, acquiring a 2001
Hawker 800XP for nearly $9 million.
We
believe this expenditure is absurd in a company of Chemed’s size and structure,
representing 13.4% (not including the undisclosed carrying costs) of 2008 GAAP
net income, over 36% of total 2008 capital expenditures and increases over
Chemed’s corporate level capital expenditures for 2006 and 2007 of nearly 7,000%
and 5,000%, respectively. Even more troubling is that Chemed’s board could
justify the purchase of a $9 million Hawker 800XP when it already owns a Hawker
700, also a 15-seat aircraft. While Jet Resources Inc. does in fact offer
charter services (an industry that ground to a halt well before November 2008
and that even in good times has no relevance to Chemed’s two operating
businesses, hospice care and plumbing/drain cleaning), it continues to do so
solely with the Hawker 700 as we understand the new Hawker 800XP has not even
been licensed for charter use. We note that the company’s subsidiaries are all
in North America, largely near major airports and managed in a decentralized
fashion, and that the company’s headquarters are in Cincinnati, home to a major
airport and a Delta Airlines hub. An analysis of Chemed’s new plane’s activities
since its purchase shows it reaching such highly-trafficked locations as Boston,
Miami, New York, Chicago, Nashville, Atlanta, Philadelphia and Las Vegas. In
fact it appears the most inconvenient location the new plane has been used to
access is Bloomington, Indiana, near where we understand former Chairman Ed
Hutton and current director Sandra Laney both keep personal
residences.
In
Chemed’s March 16, 2009 letter rejecting MMI’s demand in its February 12, 2009
letter for a tax-free spin-off of one of the company’s two subsidiaries, CEO
Kevin McNamara cited the “current market environment” as the primary reason
Chemed would not proceed with a split-up and implied that Chemed would revisit
the issue at the proper time. We can think of no reason stockholders could
possibly trust the timing of a management and board who chose to upgrade its
private jet fleet at stockholder expense in the midst of a 100-year storm in the
global economy. MMI’s decision to nominate its highly qualified slate of
independent director candidates was due to our concerns about such
decision-making.
We recognize that as a
long-term board member you participated in the decision to purchase this
aircraft, yet we nonetheless are hopeful that Chemed will begin the process of
addressing its entrenched culture of corporate largesse in advance of the 2009
annual meeting.
Sincerely,
Clay
Lifflander
CERTAIN
INFORMATION CONCERNING THE PARTICIPANTS
MMI
Investments, L.P., a Delaware limited partnership (“MMI Investments”), together
with the other participants named below, has made a preliminary filing with the
Securities and Exchange Commission (“SEC”) of a proxy statement (the “Proxy
Statement”) and an accompanying proxy card to be used to solicit votes in
connection with the solicitation of proxies in support its director nominees at
the 2009 Annual Meeting of Stockholders of Chemed Corporation (the
“Company”).
MMI
INVESTMENTS ADVISES ALL STOCKHOLDERS OF THE COMPANY TO READ THE PROXY STATEMENT
AND OTHER PROXY MATERIALS AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION. IN ADDITION, THE PARTICIPANTS IN THE PROXY SOLICITATION
WILL PROVIDE COPIES OF THE PROXY STATEMENT WHEN AVAILABLE WITHOUT CHARGE UPON
REQUEST. REQUESTS FOR COPIES SHOULD BE DIRECTED TO THE PARTICIPANTS’ PROXY
SOLICITOR, MACKENZIE PARTNERS, INC. BY CALLING (800) 322-2885. ANY SUCH PROXY
MATERIALS WILL ALSO BE AVAILABLE AT NO CHARGE ON THE SEC’S WEB SITE AT
HTTP://WWW.SEC.GOV.
The
participants in the proxy solicitation are MMI Investments, MCM Capital
Management, LLC (“MCM”), which is the general partner of MMI Investments, John
S. Dyson, who is Chairman and a voting member of MCM, Clay B. Lifflander, who is
President and a voting member of MCM, Scott J. Cromie, James Foy, Peter A,
Michel and Carroll R. Wetzel, Jr. (the “Group”). As of April 1, 2009, MMI
Investments beneficially owned 800,000 shares of common stock, $1 par value per
share (the “Common Stock”), of the Company, which shares represent approximately
3.6% of the outstanding Common Stock, and Mr. Cromie beneficially owned two
shares of Common Stock. Except for the shares owned by MMI Investments and Mr.
Cromie, which each member of the Group may be deemed to beneficially own under
SEC rules, none of the other members of the Group beneficially owns any Common
Stock of the Company. Additional information concerning MMI Investments and the
other members of the Group will be included in the Proxy Statement.