Merion Road Capital Management LLC and Blue Hill Advisors LLC, shareholders of United Bancorporation of Alabama Inc. (UBAB), are asking the company’s board to appoint two investment executives as independent directors.
In a Sept. 8 letter sent to the UBAB Board, Merion Road Capital Management Manager Aaron Sallen and Blue Hill Advisors Managing Member Jason Blumberg formally requested their appointments, citing concerns about UBAB’s capital allocation, expenses, and board composition.
Their request follows years of discussions with UBAB management and other shareholders, they wrote, noting that they think the bank is at an important point in its strategic planning and additional board expertise could help address issues affecting shareholder value.
“UBAB is at a critical juncture where capital allocation and strategic planning are key to producing strong long-term shareholder returns,” wrote the investors.
The letter follows a July 7 letter from the two investment firms that proposed several measures, including changes to capital allocation, greater expense discipline, and board enhancements.
Since the July 7 letter was made public, the investors noted that UBAB’s shares have risen 15 percent compared with a 1 percent increase for the Nasdaq Bank Index and a 2 percent increase for the S&P 500. They also said other shareholders support their involvement.
However, despite such developments, the investors wrote that, “we have not seen any tangible progress from the board in addressing or acting on our proposals.”
“Shareholders would benefit greatly from directors with the expertise to critically evaluate these issues, reach defensible conclusions, and help execute on them where appropriate,” wrote Sallen and Blumberg.
They specifically cited four areas in which they said the board has not provided information: capital ratio targets, an analysis of their proposed $40 million tender offer, expense or efficiency targets, and additional board expertise in capital allocation.
“Inaction is not an option,” they wrote. “High-level discussions are not a substitute for concrete analysis and decisive action.”
Sallen and Blumberg also pointed out that they would bring investment and financial-services experience to the board.
For instance, Sallen has 20 years of investing experience, according to the letter, and has run Merion Road Capital Management for the past 10 years, and the firm’s small-cap fund has produced annualized returns of 17.2 percent, compared with 11.4 percent for the Russell 2000, and 7 percent for the Barclay Hedge Fund Index.
Blumberg has more than 15 years of financial-services experience focused on U.S. regional and community banks, according to the letter, and previously worked in financial institutions groups at Lazard, Jefferies and Hovde, advising on mergers and acquisitions and capital-raising transactions.
“We possess deep bank investing and advisory expertise that would significantly bolster the board’s capabilities and complement the existing directors’ skillsets,” they wrote. “Furthermore, we are meaningful shareholders who have actively purchased the stock over the past several years.”
Sallen and Blumberg acknowledged that the board would need to evaluate their qualifications and said they’re willing to meet with independent directors as part of that process. They also asked the board to consider their appointments promptly and provide “a clear timetable for its decision.”