SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
| Filed by the Registrant: | ||
| Filed by a Party other than the Registrant: | X |
| Check the appropriate box: | ||
| Preliminary Proxy Statement | ||
| Confidential, for Use of the Commission only (as permitted by Rule 14a-6(e)(2)) | ||
| Definitive Proxy Statement | ||
| X | Definitive Additional Materials | |
| Soliciting Material Under Rule 14a-12 | ||
FEDERAL SIGNAL CORPORATION
(Name of Registrant as Specified in its Charter)
WARREN B. KANDERS
STEVEN R. GERBSMAN
NICHOLAS SOKOLOW
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
| Payment of Filing Fee (Check the appropriate box) | |||
| X | No fee required. | ||
| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
| (1) | Title of each class of securities to which transaction applies: | ||
| (2) | Aggregate number of securities to which transaction applies: | ||
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): | ||
| (4) | Proposed maximum aggregate value of transaction: | ||
| (5) | Total fee paid: | ||
| Fee paid previously with preliminary materials. | |||
| Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
| (1) | Amount Previously Paid: | ||
| (2) | Form, Schedule or Registration Statement No.: | ||
| (3) | Filing Party: | ||
| (4) | Date Filed: | ||
FEDERAL SIGNAL CORPORATION
Investor Presentation
By
Kanders Group
April 2009
2
Contents
Overview of Kanders Group 3
Federal Signal – Situation Analysis 7
Federal Signal Governance Profile 20
Our Approach 24
Summary 31
3
Overview of the Kanders Group
4
Overview of Kanders Group
Our approach is to invest in undervalued public companies with
significant upside potential in industries with which we are familiar.
We are long-term investors who bring a disciplined approach to
building public companies through organic growth and strategic
acquisitions, utilizing
the public capital markets to augment funds
generated internally.
Unlike many investors, we invest significant amounts of our own
personal capital, aligning our personal interests directly with those of
other shareholders far in excess of any board compensation we
may
receive.
We approach investments as owners and not renters of stocks, and
we are committed to building businesses in partnership with other
shareholders over long periods of time, compared to others who are
short-term profit oriented.
Our nominees have direct operating experience in the law
enforcement and security and information technology industry,
extensive M&A and acquisition integration expertise, experience with
complex
legal issues, and exemplary corporate governance records.
Track Record of
Creating Shareholder
Value
Direct Industry
Experience
Investing Personal
Capital
5
Armor Holdings (formerly NYSE:AH)
Building a Multi-Billion Dollar Diversified Defense Company
Business Description: Leading manufacturer and supplier of military vehicles and safety and survivability
products to the global law enforcement and aerospace and defense markets, competing
directly with Federal Signal in the
signaling equipment markets
Investment Thesis: Positive
global macros in security products space; public vehicle ideal for
consolidating fragmented municipal markets
Strategic Actions Taken: Led company as Founder, Chairman
and CEO building company from $12M in
revenue
to over $3.5B, spearheaded capital raising in excess of $1.4B, executed in
excess of 30 acquisitions, created
top 1% performer amongst all NYSE listed
stocks during 11-year investment
period
Corporate Governance: Exemplary corporate governance practices
Revenue
Net Income
Equity Value
$3,500
$980
$140
$31
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
1996
2000
2004
2007
$3,500
$980
$140
$31
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
1996
2000
2004
2007
$235
$153
$17
$1
$0
$50
$100
$150
$200
$250
1996
2000
2004
2007
$235
$153
$17
$1
$0
$50
$100
$150
$200
$250
1996
2000
2004
2007
$4,000
$1,416
$306
$14
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
1996
2000
2004
2007
$4,000
$1,416
$306
$14
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
1996
2000
2004
2007
Armor
S&P
Since
Holdings
500
1996
3420%
119%
2000
590%
(7%)
2004
236%
23%
Note: All financial data for 2007 reflects guidance given by Armor Holdings for fiscal 2007.
6
Comparable Stock Price Performance
Oct 2007 – Armor sold to BAE Systems
for $4.5 billion or $88 per share
Value of $100 invested in each company at 1/2/2003 to present, including reinvestment of dividends
Comparable companies include diversified industrials covered by Goldman Sachs
Source: Prices from Yahoo! Finance
7
Federal Signal – Situation Analysis
8
8
Chronology of Events Leading to the Solicitation
We originally invested in Federal Signal in November 2007 because it met our investment criteria:
Undervalued relative to its peers
Operating in an industry with which we are familiar as FSS competed with Armor Holdings
Significant upside potential to the stock provided that the Company was governed and
managed properly
Since that time, we have witnessed the following:
Financial performance that reflects poor capital allocation decisions
Continuation of a revolving door in the executive ranks
Continuing to miss financial guidance resulting in a lack of investor confidence
Surfacing of governance conflicts that we believe are inconsistent with the transparency required
of public companies
We believe, based on our experience in its industry, our success in prior investments, our experience
with a strategy of growth through acquisition and
integration, and our track record of institutional
corporate governance practices, that we are very qualified to assist Federal Signal in achieving its
potential.
9
9
Capital Allocation Compared with Cash Flows and Market
Capitalization – Where Did the Cash Go?
$229 million spent on
CapEx and
Acquisitions between
2006-2008
62% Decline in
Market Capitalization
Poor capital
allocation decisions
have contributed to
erosions in
shareholder value
and have not yielded
returns on invested
capital
Feb 2006 - FSS announces
new growth strategy in
continuation of “shrink to grow”
2007 - FSS acquires three
companies, touts “robust
integration process” in 9/2/07
investor presentation
2007 to present – 2/3 of senior
management exits the Company
Source: CapitalIQ.
Company filings.
10
10
Comparable Company Return on Equity
Company’s strategic plan indicated that acquisitions and business
portfolio changes would improve profitability metrics…
Comparable companies include diversified industrials covered by Goldman Sachs
Source: CapitalIQ.
11
11
Comparable Company Return on Assets
Comparable companies include diversified industrials covered by Goldman Sachs
However, investments in capital expenditures and acquisitions have
not yielded improvements….
Source: CapitalIQ.
12
12
Comparable Company Return on Capital
And Federal Signal significantly lags its peers when measured by the
ability to employ capital to produce financial results.
Comparable companies include diversified industrials covered by Goldman Sachs
Source: CapitalIQ.
13
13
Federal Signal Stock Price Indexed Against its Peers
Federal Signal has
produced a negative
total return
(including
reinvestment of
dividends) of -61%,
while its peer group
has declined an
average
of -29%.
While we
acknowledge
difficulties in the
current market
environment, we
believe Federal
Signal’s stock price
is primarily the result
of the
Board and
management’s
actions.
Source: Stock prices including adjustments for dividend reinvestments from Yahoo! Finance.
14
14
Federal Signal Balance Sheet Optionality Relative to Its
Peers
Federal Signal’s
balance sheet
position relative to
its earnings power
leaves it with less
flexibility to respond
opportunistically to
growth
initiatives.
Balance sheet optionality defined as (2009 FCF less Dividend + Debt Capacity) / Current Market Cap
Source: Goldman Sachs research report dated March 24, 2009.
15
15
Management Turnover at Federal Signal
Position
Time of departure
1. James Janning – Chairman of the Board
April 2009
2. David McConnaughey – President, Safety Products Group
February 2009
3. Stephanie Kushner – CFO
December 2008
4. John Gruber – VP of Corporate Development
October 2008
5. James Goodwin – Interim CEO
September 2008
6. Paul Brown – VP and Controller
August 2008
7. Robert Welding – CEO
December 2007
8. Marc Gustafson – President, Fire Rescue Group
July 2007
9. Karen Latham – Treasurer
August 2006
10. Paul Box – Chief Procurement Officer
May 2007
11. Stephen Buck – President, Safety Products Group
May 2006
12. Duane Doerle – VP Corp Development
October 2005
13. Alan Ringler – President of Tool Group
October 2005
14. Alex Craig – Chief Information Officer
May 2005
15. Matthew Saviello – Chief Procurement Officer
May 2005
16. Richard Ritz – VP and Controller
March 2005
17. Harold Pinto – Head of Fire Rescue
July 2004
18. Kim Wehrenberg – General Counsel
March 2004
19. Joseph Ross - CEO
December 2003
Key to this
underperformance
has been the
exceedingly high
management
turnover at Federal
Signal, which hinders
strategic execution,
damages morale
and
confuses customers.
16
16
A Page from September 2007 Federal Signal Investor
Presentation
The Company has
been pursuing a
strategy of “shrink to
grow” since 2004.
Results:
Unfulfilled promises
Lack of integration
- No Board oversight
17
17
Statements by Company Executives Over Time
What they said?
The reality
“We were able to extract $38 million of
working capital from E-One prior to its
sale”
Jim Goodwin, October 2008
If true, this should have been disclosed
when they sold the business. Not
discernible on financial statements.
“$20 million expense reduction target
in 2008”
Earnings Call, Mar 2008 and May 2008
SGE&A expenses increased by
$20 million
“Certain initiatives at Bronco will reduce
our working capital”
Jim Goodwin, Mar 2008
Working capital increased from $91
million to $159 million between Dec 07
and Dec 08
“Peter Guile has brought new optimism
to E-One and customers are responding
well”
Robert Welding, October 2007
Company sold for 10% of revenues or
30% of expected price 9 months later
“Robust integration planning”
- Robert Welding, September 2007
History of acquisitions without
integrations.
A long series of
broken
commitments to
shareholders and
Wall Street analysts
has contributed to a
serious credibility
problem for Federal
Signal,
which we
believe only Board
level changes can
address.
18
18
Analyst Reports Mirror Federal Signal’s Legacy of
Unfulfilled Promises
Report
Takeaway
June 13, 2007 Goldman Sachs
“Federal Signal has been an underperformer for
about a decade”
July 27, 2007 Goldman Sachs
“2Q EPS below expectations, maintain sell”
October 25, 2007 Goldman
Sachs
“FSS misses earnings”
May 4, 2008 Goldman Sachs
“Weak Q1 operating results”
October 30, 2008 Goldman
Sachs
“We maintain our sell rating following weak 3Q
EPS… accompanied by limited detail about
potential cost cutting”
Inconsistent
performance,
unrealistic
expectations, and an
inability to deliver
even short-term
results is reflected
in analyst coverage.
19
19
CEO Bill Osborne was recently interviewed by Bloomberg
news
Mr. Osborne’s
statements confirm
that the Board of
Directors has failed
to effectively
oversee execution of
the Company’s core
strategy,
has
allowed acquisitions
to occur with no
integration planning,
and has failed to
hold management’s
feet to the fire.
The Company “needs a
big internal
merger” to improve operating margins…
“Given our history
of acquisitions without
integrations, we have some very good
internal projects we can do.”
“It is no longer about boots and suits.”
In other words, the Company is now again
advocating a strategy of “shrink to grow”
Source: Bloomberg News article dated March 12, 2009 by Melita Garza.
20
Federal Signal Governance Profile
21
21
Federal Signal Board Deficiencies
Issue
The Facts
No Transparency
Former CEO Joseph Ross was removed without
severance following an allegation by a former
General Counsel of insider trading by his family
members. The Board did
not disclose the
existence of an investigation until five years later.
No Transparency
Company disclosed nothing about the reasons
behind Robert Welding’s sudden “retirement”
while agreeing to treat his retirement as
termination “without cause”
for purposes of
severance.
No Transparency
E-One was sold to a private equity firm founded
by colleagues of Board Member Paul Jones and
E-One management. The Company also did not
obtain a fairness opinion or make the
terms of
the sale public.
Pay for Failure
Continually rewarding managers with bonuses
for declining financial performance.
A significant and
troubling number of
governance
improprieties have
arisen which we
believe are
inconsistent with the
duties of the Board of
Directors
of a public
company.
22
22
Federal Signal Board Deficiencies
(continued)
Issue
The Facts
Classified Board of
Directors
Classified boards
are unfriendly to shareholders and serve to entrench board members and
managements.
By-Law Changes
The Company changed its By-laws in 2008 to
restrict the ability of activist shareholders to
engage in proxy contests.
Ignoring Board Policy
Board claims to
have a CEO succession plan in place, yet takes 9 months to replace Robert
Welding.
Share Ownership
Board of directors has minimal personal capital
invested in the Company’s common stock.
Tax Gross Ups
The Board adopts of a policy prohibiting
contracts that include tax gross ups after
granting Bill Osborne and Jennifer Sherman tax
gross ups.
A significant and
troubling number of
governance
improprieties have
arisen which we
believe are
inconsistent with the
duties of the Board of
Directors
of a public
company.
23
The Board of Directors in Action
What has this Board
been doing?
The statistics speak
for themselves.
3 of 10 Board seats ensures a meaningful change.
24
Our Approach
25
Industry Experience and Success, Proven Track Record
1,382,356 Shares Owned, 2.9% of Outstanding Shares
Kanders Group Nominees
Warren B. Kanders
1,253,313 shares
Mr. Kanders has served as the President of Kanders & Company since 1990. Prior to the
acquisition by BAE Systems, plc on July 31, 2007 of Armor Holdings, Inc., formerly a New
York Stock Exchange-listed company, a manufacturer and supplier of military vehicles,
armed vehicles and safety and survivability products and systems to the aerospace and
defense, public safety, homeland security and commercial markets, he served
as the
Chairman of the Board of Armor Holdings, Inc. from January 1996 and as its Chief Executive
Officer from April 2003. From April 2004 until October 2006, Mr. Kanders served as the
Executive Chairman, and since October 2006,
has served as the Non-Executive Chairman of
the Board of Stamford Industrial Group, Inc. [SIDG.PK], formerly named Net Perceptions,
Inc., a publicly-held company that, through its subsidiary, Concord Steel, is a leading
independent manufacturer
of steel counterweights. Since November 2004, Mr. Kanders has
served as the Chairman of the Board of Directors of Langer, Inc. [GAIT], a Nasdaq-listed
manufacturer of skin-care products. Mr. Kanders has served since June 2002 as a member
of
the Board of Directors of Clarus Corporation [CLRS.PK], a publicly-held company, and as
the Executive Chairman of Clarus Corporation’s Board of Directors since December 2002.
Since May 2007, Mr. Kanders has served as a director of Highlands
Acquisition Corp., a
publicly-held special purpose acquisition company formed in 2007. From October 1992 to
May 1996, Mr. Kanders served as Founder and Vice Chairman of the Board of Benson
Eyecare Corporation, a manufacturer
and provider of eye care products and services. Mr.
Kanders also currently serves on the Board of Trustees for the Whitney Museum of
American Art, the Board of Trustees of the Winston Churchill Foundation (Cambridge
University), and the Board of
Trustees of the Choate Rosemary Hall Foundation. Mr.
Kanders received a B.A. degree in Economics from Brown University in 1979.
26
Nicholas Sokolow
119,043 shares
Since 2007, Mr. Sokolow has been in private law practice as a partner in the firm of Lebow &
Sokolow LLP. From 1994 to 2007, Mr.
Sokolow was a partner in the law firm of Sokolow,
Carreras & Partners. From June 1973 until October 1994, Mr. Sokolow was an associate
and partner in the law firm of Coudert Brothers. Mr. Sokolow has served as a member of the
Board of Directors
of Stamford Industrial Group, Inc. since April 2004 and has served as a
member of the Board of Directors of Clarus Corporation since June 2002. Prior to the
acquisition by BAE Systems, Inc. of Armor Holdings, Inc. on July 31, 2007, Mr. Sokolow
served as a member of the Board of Directors of Armor Holdings, Inc. since January 1996,
serving on the Audit, Nominating and Corporate Governance Committees. Mr. Sokolow is a
graduate of the Institut D’Etudes Politiques (Economics
and Finance) and the Faculte de
Droit (Law) and received a Masters of Comparative Law degree from the University of
Michigan.
Industry Experience and Success, Proven Track Record
1,382,356 Shares Owned, 2.9% of Outstanding Shares
Kanders Group Nominees
27
Steven R. Gerbsman
10,000 shares
Since 1980, Mr. Gerbsman has been a principal of Gerbsman Partners, a company providing
consulting, management, advisory and investment banking services to its clients in a broad
variety
of industries. Mr. Gerbsman has significant experience in assisting companies in
crisis management and turnaround situations and advising companies seeking to improve
performance in specific balance sheet, financial or operating areas. Mr. Gerbsman
has
worked with a wide spectrum of senior and junior lenders, bondholder groups, venture
capital and equity sources, private investors and institutional groups in maximizing
enterprise, stakeholder and shareholder value. To date, Mr. Gerbsman
has been involved in
over $2.2 billion of restructuring, financing and M&A transactions. Prior to forming
Gerbsman Partners in 1980, Mr. Gerbsman was President of four operating divisions of ITEL
Corporation with responsibility in the
technology, leasing and business sectors. Mr.
Gerbsman began his business career at IBM Corporation in 1967. Mr. Gerbsman received a
BS in Accounting from Hunter College, New York and attended the Baruch Graduate School
of Business in New
York. Mr. Gerbsman is also a guest lecturer at the University of San
Francisco’s
MBA program and at the Haas Graduate School of Business in Berkeley, California.
Industry Experience and Success, Proven Track Record
1,382,356 Shares Owned, 2.9% of Outstanding Shares
Kanders Group Nominees
28
No Industry Experience, No Track Record, No Stock Ownership
38,317 Shares Owned, 0.08% of Outstanding Shares
FSS Nominees
Bill Osborne
10,000 shares
(excludes
restricted shares)
Untested as a manager of an independent company.
No experience in industries in which Federal Signal operates.
No experience as the CEO of a public company.
No experience as the Board Member of a public company.
James Goodwin
23,857 shares
Served as interim CEO in 2008 yet failed to implement any of the steps now
advocated.
Received over $800,000 in compensation in 2008, including a bonus in a year in
which financial results were poor.
We do not believe Mr. Goodwin is truly independent.
Primary business credential serving as CEO of United Airlines; reportedly being
forced to resign after failing to control costs.
No experience in manufacturing or in the industries in which Federal Signal
operates.
Jim Wright
4,460 shares
Only director since 2008.
Nominated as the representative of a hedge fund which has since sold its position.
Has not purchased shares of FSS common stock with his own funds, little
alignment with shareholder interests.
No experience in the industries in which Federal Signal operates.
29
What our solicitation means…
We are here to help, not take the Company over.
If elected, our nominees will only be 3 of 10 Board members
Federal Signal faces significant challenges and requires fresh input
at the Board level to restore accountability, safeguard the
Company’s capital, and provide new strategic vision.
Given the Board’s lack of responsiveness to the ongoing
destruction of shareholder value, three board seats will send a
message to the other directors that long-term value destruction
is
not acceptable to shareholders.
Our nominees can help restore the confidence of Wall Street, which
will be required for the Company to raise growth capital.
Kanders raised over $1.4 billion in debt and equity in the four
years prior to the sale of Armor Holdings.
Our nominees, with significant expertise in Federal Signal’s
business, can provide guidance to the Board and management,
which lacks experience in the Company’s industries.
No member of the Board or the top two executives has direct
operating experience in FSS’ industries.
What we are and are
not trying to
accomplish……
30
Returning Accountability to Board and Management
Kanders Governance Platform
Strategic Vision and Execution
Provide fresh perspective informed by experience in strategy,
acquisitions, integration, capital allocation, legal matters, and
raising capital
Accountability
Hold management accountable for performance
Utilize our experience to restore FSS credibility
Pay for performance, including elimination of outsized
severance
Governance
Eliminate staggered board
Utilize pay for performance and align the financial interests of
the Board and management with shareholders
Change by-laws to be shareholder friendly
The Board must “walk the walk” and abide by its own policies
Federal Signal
requires a fresh
perspective at the
Board of Directors to
re-install basic
fundamentals of
managing this
business.
31
Summary
32
Returning Accountability to Board and Management
Summary of the Kanders Group Solicitation
Federal Signal’s Board of Directors requires new blood to navigate current
challenges.
The current Board has presided over destruction of shareholder value and
declining financial performance, and has been unresponsive to
shareholder
concerns.
The Kanders nominees have direct operating experience in Federal
Signal’s industry and a track record of success.
The Kanders nominees are much better equipped than the current slate of
nominees from Federal Signal given their respective experience.
The Kanders nominees collectively own 2.9% of the Company’s common
stock purchased with personal funds – our interests are
aligned with
shareholders.