Velcro, the touch fastener so beloved of outdoor skiing types and their like, is at the centre of a bitter spat between its board and disgruntled shareholders over that vexed question of shareholder value.
Invented over 40 years ago by a Swiss engineer, the product is now owned by a Netherlands Antilles company with its major manufacturing operations in the United States. But the chairman of Velcro is a very British knight, Sir Humphrey Cripps, a 75-year-old Northamptonshire businessman whose extraordinary generosity to charities, Cambridge colleges and Nottingham University earned him a knighthood in 1989.
However, some Velcro shareholders do not feel quite so well disposed to Sir Humphrey. A minority group led by Alan Kahn, president of Kahn Brothers, a New York broking house, rebelled against the Velcro board late last year. Kahn reckoned that a plan either to make them sell their shares or to force a swap of the shares for shares in a newly formed corporation called Velcro Reorganisation NV was "in effect Hobson's choice", as he put it in an affidavit filed with a New York federal district court.
In his affidavit, dated September 27, Kahn alleges that "remaining Velcro minority shareholders will be faced with the unpleasant choice of receiving either a grossly unfair cashout price of $21.75 per share based upon artificially depressed market prices, or equity in VRNV, a company which will not be traded on NASDAQ or any other stock exchange requiring the necessity for public filings and resulting in an illiquid market".
Kahn's thesis is simply that both because of its profit record and its potential as a brand name, Velcro's share price should have been a lot higher - in the region of over $40 a share. He pointed out that the company's investment portfolio alone, "which will be worth $17.73 per share by 30 September 1990, if the portfolio experiences the same rate of growth as last year, is equal to nearly the value of the total cash-out price". Kahn also claims that a new and superior Velcro product, Ultra-Mate, had not been mentioned in the original proxy statement outlining the Velcro reorganisation.
The problem for Kahn and his fellow minority shareholders, representing approximately 25% of Velcro's publicly held shares, was the powerful presence of a 65% block in Velcro held by a company called Cohere, which had originally committed itself to support the liquidation proposal. Registered in the British Virgin Islands, the ultimate ownership of Cohere is unclear.
Nonetheless, the notice sent to Velcro shareholders for the 1991 annual general meeting does give some clues. Three of Velcro's nine directors are members of the Cripps family. Apart from Sir Humphrey, his sons Robert and Edward also sit on the main board. Sir Humphrey has just 100 shares in Velcro, but neither son holds any shares. Robert Cripps is a director of Cohere Ltd, which holds as an investment 1,963,528 shares in Velcro - or 65% of the share capital.
The action by Kahn and fellow minority shareholders prompted a rethink, as the recent Velcro annual report made clear: "Upon hearing of the action and wishing not to become embroiled in US litigation, Cohere advised the company that it would reverse its previously announced decision and vote against the proposal." At a special general meeting held in the Princess Beach Hotel and Casino, Curacao, Netherlands Antilles, on October 22 1990, Cohere duly did just that and the whole battle over the future of Velcro was put on ice.
But not quite. The shareholders in Velcro have received no dividends in 1989 and 1990, despite the fact that pre-tax earnings have grown from $6.3 million in 1988 to $9.4 million in 1990, and the company is awash in liquidity, with marketable securities as of September 30 1990 worth slightly less than $50 million.
Moreover, the economic outlook for the company hardly warranted no dividend payments, as Sir Humphrey made clear in his chairman's statement last November: "There is a degree of optimism for the 1991 year in the expectation that the negative effects of the economy may be offset and minimised by the advancements being implemented in many areas of our business."