Costa Brava Partnership III, L.P. ("Costa Brava") today sent the
following letter to Mr. Clement Revetti, member of the Board of
Directors of MedQuist Inc. (OTC: MEDQ.PK) and a senior executive of
Koninklijke Philips Electronics N.V. ("Philips") (AEX: PHI, NYSE:
PHG).
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Mr. Clement Revetti, Jr.
Director
MedQuist Inc.
1000 Bishops Gate Boulevard
Suite 300
Mount Laurel, NJ 08054
VIA FEDEX
Mr. Revetti:
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I am a manager of Costa Brava Partnership III, L.P., a significant
owner of the common stock of MedQuist, Inc. ("MedQuist").
At the annual meeting of MedQuist shareholders held on December
31, 2007, I posed critical questions to CEO Howard Hoffman and you.
These questions go to the heart of the involvement of majority
shareholder Philips Electronics N.V. ("Philips") in the sale process
of MedQuist stock and the fiduciary duty owed to the minority public
stockholders. Unfortunately, you were either unprepared or unwilling
to answer my questions. I find your lack of response particularly
troubling, in view of your conflicting roles as a member of the Board
of Directors of Medquist and as the Chief Legal Officer of Philips
Medical, a division of Philips.
As you know, Philips has publicly announced that its 70%
investment in MedQuist is not a core holding and that Philips will
seek to dispose of this interest. In a maneuver that can be described
as a classic example of the tail wagging the dog, Philips caused the
resignation of three independent directors of MedQuist and forced
MedQuist to seek a sale of itself for Philips´ benefit, to the
detriment of MedQuist´s minority public stockholders. Indeed, at the
shareholders meeting Mr. Hoffman stated unequivocally that MedQuist is
in the midst of the "optimization" stage of its restructuring plan
that will generate substantial savings and, thus, enhance MedQuist´s
value.
As you conceded at the annual meeting, the replacement of these
three independent directors with two hand-picked alternatives is a
violation of the Governance Agreement that governs the relationship
between your principle employer, Phillips, and our company, Medquist.
Hence, the process by which Phillips and its functionaries are forcing
the sale of the entirety of Medquist is illegitimate, as it is being
directed by a conflicted and incomplete Board.
Finally, Philips has directed MedQuist into related-party
transactions with Philips, whereby MedQuist pays Philips material
monetary amounts that have been hidden from MedQuist´s public
stockholders. These hidden payments are scheduled to continue to 2013,
well beyond any near term sale of MedQuist directed by Philips. The
result of this elaborate related-party scheme is that Philips will
continue to be paid by the presumed acquiror of MedQuist long after
the public minority stockholders are forced to accept fire-sale values
for their MedQuist shares.
My critical questions posed to you at the shareholders meeting
were two-fold:
First, in light of the aforementioned related-party scheme with
Philips, I asked whether the Philips executives on MedQuist´s Board
(Messrs Rusckowski, Sebasky, Weisenhoff and you) will be recused from
the MedQuist sale process. Remarkably, you asserted that there is no
conflict of interest for you and the other three Philips executives to
act as fiduciaries on behalf of all MedQuist stockholders, and you
confirmed that none of the Philips executives have been, or will be,
recused from deliberations about the sale process.
Second, I asked you whether Philips will compensate the public
minority stockholders of MedQuist in the sale process for amounts
diverted to Philips from its continuing vendor relationship with the
acquirer of MedQuist, since the public stockholders of MedQuist will
receive no such payments. You refused to answer my question.
Other parties have raised similar concerns. The world´s leading
institutional proxy advisory firm, RiskMetrics/ISS, issued a report on
December 28, 2007 regarding MedQuist. The report identified the
substantial risk that Philips´ desire to sell MedQuist will conflict
with the interests of MedQuist´s public stockholders.
I would like to remind you that Costa Brava has been successful in
recent weeks in obtaining two court orders in the Superior Court of
New Jersey against MedQuist, one which was the ordering of this
stockholders´ meeting, which Philips had impeded since 2003.
In view of your refusal to answer my questions posed to you at the
stockholders´ meeting regarding Philips´ role, in additional to your
denial of the clear conflict of interest of the Philips executives on
MedQuist´s Board, Costa Brava reserves all of its rights and claims in
connection with any sale of MedQuist, including its rights to seek
injunctive relief, monetary damages caused by violations of the New
Jersey Shareholders Protection Act and appraisal remedies.
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Sincerely,
Andrew R. Siegel
Senior Vice President
Roark, Rearden & Hamot Capital Management
Cc: The Board of Directors
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About Costa Brava Partnership III, L.P.
Costa Brava is a Boston based investment fund, managed by Roark,
Rearden & Hamot Capital Management LLC.
