A proxy fight is heating up between LCA-Vision (LCAV; Cincinnati) and a group of the company's former executives who have said they want to save the company from its "current path to self-destruction" and have called for the removal of the current LCAV directors. But, LCAV CEO Steve Straus tells Medical Device Daily, "this isn't a typical proxy fight story."
Leading the fight against LCAV is the company's founder and former CEO/chairman, Stephen Joffe, MD; his son Craig Joffe, the former COO/general counsel; and Alan Buckey, the former VP of finance/CFO. Collectively, the group reports owning 11.4% of LCAV, according to a Schedule 13D filing with the Securities and Exchange Commission.
LCAV operates 75 LasikPlus fixed-site laser vision correction centers in 32 states in the U.S. Straus was appointed the company's CEO in 2006, after Stephen Joffe left the company. Craig Joffe, who served as interim CEO after his father left, resigned soon after Straus arrived.
Despite the Joffe group's efforts to overthrow the current LCAV board, two independent research and proxy advisory firms have recommended that LCAV stockholders vote to retain the company's current board and reject all of the proposals, including the removal of the current directors and election of replacement directors, in the Joffe group's consent solicitation.
Glass Lewis and RiskMetrics Group have both recommended shareholders vote against the Joffe group's consent solicitation. Straus told MDD the company also was interviewed by a third firm, Proxy Governance, and as of press time was still waiting for that firm's recommendations.
"I'm pleased with their recommendation and I've felt in my heart of hearts this was the way it would go," Straus told MDD.
Late last year the Joffe group launched a letter-writing campaign to the LCAV board, to which the board responded in December, saying it is concerned about the company's recent operating results, but that it disagrees with the group's description of the company's condition as "dire" or its prognosis as "poor," (MDD, Dec. 15, 2008).
In its letters to the LCAV board, the Joffe group has noted that the company's stock price has dropped 90% since Straus was appointed CEO. Other signs of the company's "dire" conditions outlined in the group's letters include the elimination of the quarterly dividend to shareholders, the suspension of the share repurchase program, and dramatic losses in national market share and revenues plummeting 50%. The group also says LCAV is burning about $2 million of cash a month.
Straus credits Stephen Joffe, a physician-turned-entreprenuer, with creating a "nice model" around which the company, originally known as Laser Centers of America, was built.
"He did a lot of great things to put this model together and rode it for 10 years," Straus said.
According to the Joffe group, the Joffes and Buckey worked together as the executive management team of LCAV to grow the market capitalization of the company well in excess of 1,000% from 2003-2006.
In early 2006 the elder Joffe bought $30 million of TLC Laser Eye Centers stock, which LCAV considers its largest competitor. That, of course, did not sit well with the board, Straus said, and "I'm told when he departed it was a bit acrimonious with the board."
In its report, Glass Lewis concludes that, among other things, that the incumbent directors of LCAV are in the best position to guide the company during a turnaround period.
The report acknowledges that the company's current management has articulated a plan to enhance shareholder value by: 1) preserving cash through cash and expense management; 2) enhancing marketing strategies; 3) expanding the company's marketing presence into new domestic markets; and 4) expanding the existing business model into other complementary medical procedures and services through a new Lifetime Vision model.
The Joffe group's operations plan and business strategy as presented are "particularly thin," according to Glass Lewis. The firm also said it "cannot support the appointment of Stephen Joffe as a director, in light of accounting discrepancies at the company during the tenure of Joffe group members Stephen Joffe, Craig Joffe and Alan Buckey as senior executive officers of the company."
The company, under Stephen Joffe's leadership (and while Buckey was CFO), "was not effectively managing its financial reporting practices or lacked internal accounting expertise," the report notes.
According to the RiskMetrics report, under Straus' leadership, LCA's current management has responded to challenging economic conditions with a strategy "meant to position LCA to weather a sustained period of declining procedure volume."
Regarding Stephen Joffe, the RiskMetrics report states, "... we have governance concerns that preclude us from recommending support for him," and added, "We note that none of the other dissident [board of director] nominees have relevant company or industry specific experience."
Straus said the company increased its market share from 10.5% in the third quarter 2008 to 11.9% in the fourth quarter. "We believe we are on the right track and urge our stockholders to vote for our current board and management team," he said.
In a conversation with MDD in December, Craig Joffe acknowledged that his group's history with LCAV has both financial as well as emotional components to it. He said that he, his father and Buckey decided to take action after they were approached by "a bunch of physicians in total despair [over] the current management of the company."
LCAV's physician compensation model is variable, such that their compensation increases as their business does well.
This disagreement between LCAV and the Joffe group comes at a time when the opthalmic surgery community has taken an especially hard hit by the current economy. Practices that do a lot of consumer-paid refractive surgery procedures, such as LASIK, have been particularly impacted. Last fall, some areas of the U.S. were reporting that LASIK volume was down 40% to 50% compared to last year (MDD, Nov. 11, 2008).
Straus told MDD the company is considering expanding its business model to include more than just LASIK surgery. For example he said he would like LCAV to eventually provide "world class" eye exams that would be better than a patient could get today from an optometrist's office, to help detect eye health problems early on. When a problem is detected, the clinic could either refer the patient to an appropriate specialist, or, if a surgical treatment is recommended, provide the service there.
"We want to be postured when the economy improves that we will grow faster in volumes and profits than anybody else, but in the meantime ... we fully expect to outperform the industry, which means we want to claw back some of the market share."