Sharks In The Water: Battling An Activist

Investor For Corporate Control (A)

Study Question Responses
1. Based on the exhibit and Barracudas previous history as well as
their actions with eight other target companies or firms,
Barracuda is expected to disagree with the overall structure of
the company if profits still remain unseen. In all past cases
Barracuda has been very aggressive. When Barracuda feels as if
their goals and needs arent being met or addressed, they
confront the company at hand directly. Barracuda has not been
afraid to threaten the chief officers or board members. In 3 of the
8 targets either board members or chief officers were forced to
retire or resign. Barracuda is expected to take an aggressive
public role if profit margins dont increase. In all cases Barracuda
has followed up any activity with a letter to the companies
management. These letters have all been made public the
following day. We should not expect anything different in this
case. Barracuda will likely put Tarco on notice will bring all issues
and opinions to the public light.
2. Tarcos shares are currently held by institutions, retailers, and
insiders. As seen in exhibit 5 the amount of shares held by shortterm hedge funds increased from 5.7% to 33.1% from June 2005
to June 2006. Stock prices over this period of time also dropped
from $5.91 to $2.95 (market cap also steadily decreased). Value
investors own .5% of the shares and growth investors hold
approximately .6% of the shares. This shows that majority of
investors are not concerned with the long term. In turn, we can
conclude that shareholder support is weak. Since the majority of
the shareholders are looing for quick returns they will most likely
be more motivated to support drastic changes to a non-profitable
company. This lack of support for long term success and growth
will influence quick changes to attempt to return profits. If the
CEO and company officials dont confide to shareholder majority
requests than the board will be influenced to change
management if needed.
3. If Barracuda were to initiate a proxy fight they would get the
majority support from shareholders. Based on the statistics in
Exhibit 7 and the shareholder data found in exhibit 5, the 3rd
largest shareholder (State Pension Fund) and Risk Metrics have
control of just over 50% of the company shares. Therefore, these
2 groups together can control the vote on the proposal. Exhibit 7

also states that all institutions will contribute some form of

support to the proposal as many are against staggered bonds.
The level of support for this situation is quite high; approximately
25,674,600 of the total shares will show support. Therefore there
is a good chance that the directors are removed. As time passes
and as there continues to be a lack of clarification around the
managements existing strategy, the likelihood that dissident
slate succeeds increases. On the other hard, many do contest
the proxy where a dissident slate director was introduced.
Institutions do not typically have set standards and guidelines for
decision-making. These choices are usually made based on
passed experience, merits, and qualifications. Tarco needs to
clarify their current strategies and the goals/projections of the
company. If they do this and succeed at hitting targets, dissident
slate directors should not be elected.
4 The role of ISS is to be an influence proxy advisor firm. ISS can
potentially influence around 24% of the votes in the upcoming
elections. Risk Metrics /ISS was appointed to recommend the
proper steps and actions that should be taken based on the
outcome of the elections.
5. Tarco has a few options they need to evaluate before moving
forward with any decisions. Some of these options include
working with Citibank, keeping quite, or entering into a standstill
with Barracuda. The standstill seems to be the most realistic
answer. If Tarco enters into a standstill they will avoid many
controversial issues with Barracuda. Barracuda will likely feel
hostility and aggression towards Tarco if public statements are
released showing a team-up with Citibank. By moving forward
with the standstill Tarco will avoid public fights and finger
pointed, gain confidence with investors by agreeing with
Barracuda, control public message, and lastly gain Barracudas
confidence in the strategic evaluation process. Other options
have to many affects that either leave Tarco exposed to risk, or
hurt shareholder and employee relations. These negative affects
of shareholder/employees and weakened productivity and also
hurt stock prices. Both of these will cause profit margins to
decrease. The ripples of a controversial environment could have
strong impacts on Tarco.