DCML critical of Danka's attempt to 'hijack' voting power of ADSs in proposed liquidation

By Lisa Kerner

Charlotte, N.C., June 16 - Danka Business Systems plc shareholder DCML LLC questioned recent actions by the company's board that the investor said are designed to influence the outcome of the shareholder vote in August on Danka's proposed liquidation.

It was previously reported that DCML said the planned liquidation of Danka Business Systems following the sale of Danka Office Imagining Co. to Konica Minolta Corp. is "grossly unfair" to shareholders. In response, Danka said the sale of the company's remaining operating business to Konica Minolta leaves Danka with no reason to exist.

In a June 16 letter to Danka, DCML cited the voting instructions of the proxy, which specify that Danka's designee is permitted to vote the American Depositary Shares (ADSs) of any holder that does not submit a vote by June 20.

DCML said it is inappropriate to "hijack" the voting power of such shares, "particularly when the interests of the company's designee may not be aligned with ordinary shareholders."

As result, DCML recommends that Danka abstain from voting any otherwise unvoted ADSs and let shareholders decide the fairness of the transaction.

Also in the letter, DCML said "it appears that Danka has taken steps to prevent the holders of ADS from exercising their voting rights" because only ADSs purchased prior to the record date of May 30 can be voted at the extraordinary general meeting.

Under normal circumstances, a shareholder could buy ADSs after the record date, convert them to ordinary share certificates and then properly vote them under the terms of the final proxy, DCML explained.

By instructing transfer agent Computershare Systems UK to freeze the issuance of ordinary share certificates from June 3 until after the meeting, Danka is preventing those shareholders opposed to liquidation from accumulating additional voting shares, DCML said in the letter.

DCML represents over 5.3 million ADSs, or more than 8% of ordinary shares outstanding. The shareholder said it will vote against the proposed voluntary liquidation.

Danka previously cited the costs of trying to remain an independent player in an extremely competitive industry, the level of its debt and its liquidity requirements as factors affecting the decision to liquidate.

In addition, Danka's board does not believe the company will be able to finance the forecast debt repayment obligations resulting in the withdrawal of its General Electric Credit facilities if the proceeds of the sale are not received before July 1, according to a prior news release.

In a June 9 letter to Danka's board of directors, DCML said the proposed liquidation will leave ordinary shareholders with a "pittance" of $6.5 million ($0.025 per ordinary share or $0.10 per ADS) while holders of participating shares would receive "substantially in excess of $100 million."

The investor wants Danka to consider alternative options for executing the sale of Danka Office Imaging while ensuring the value of a sale is "shared more equitably among all of the company's shareholders."

Danka Business Systems, based in St. Petersburg, Fla., provides office imaging equipment, software, support and related services and supplies in the United States.

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