Darwin Deason, Chairman of ACS Board, calls for independent Directors to resign

by PegNews wire

DALLAS — Affiliated Computer Services, Inc. today announced that, at a duly convened meeting of the company’s Board of Directors, Mr. Darwin Deason, Chairman of the Board of Directors, requested that Messrs. Robert B. Holland, III, J. Livingston Kosberg, Dennis McCuistion, Joseph P. O’Neill and Frank A. Rossi resign from the Board.

The independent directors, for some reason, refused to resign from the Board.

In support of his call for their resignation, Mr. Deason gave the independent directors a letter dated November 1, 2007, a copy of which is shown below. The letter explains that Mr. Deason requested that the independent directors resign because they have lost shareholder support, presents a group of replacement directors that Mr. Deason proposes to nominate for election at the company’s next annual shareholders’ meeting on May 22, 2008 and explains that the proposed directors currently have sufficient shareholder support to be elected at such meeting.

Mr. Deason stated, “Over the past several days, the company has held several Board meetings and related discussions to attempt in good faith to secure a consensual transition of directors, which is in the best interests of the shareholders. I am deeply disappointed that Messrs. Robert B. Holland, III, J. Livingston Kosberg, Dennis McCuistion, Joseph P. O’Neill and Frank A. Rossi have refused to answer the will of the shareholders.”

The letter in question:

Gentlemen:

The Board has come under increasing shareholder criticism for its failure to consummate a transaction based on the Cerberus offer or present a superior strategic alternative. Irrespective of the merit of these claims, they clearly demonstrate that the Board has lost the trust and support of the Company’s shareholders. It is in the shareholders’ best interests to provide the Company with new strategic leadership. As the Company’s founder and the Chairman of the Board, I must respectfully ask that you resign today from the Board.

Almost a year has passed since the board unanimously authorized Citigroup and me to identify potential bidders at a board meeting on November 9, 2006. From November 2006 through March 2007, Citigroup and I worked with several potential bidders to achieve the best possible deal for the Company’s shareholders. This process produced a cash bid of $62 per share from Cerberus. The Cerberus offer was designed to meet the Board’s requirements for a deal by providing for an extended post-signing go-shop process, an automatic release of my exclusivity agreement with Cerberus and a low breakup fee. I volunteered that my Class B shares would be voted on a one-share-one-vote basis instead of a one-share-ten-votes basis for purposes of shareholder approval of the Cerberus deal. Initially, the Special Committee refused to negotiate with Cerberus or me. It then spent several weeks and paid fees exceeding $10 million to negotiate a pre-signing waiver to Cerberus’s exclusivity agreement with me to repeat the auction conducted by Citigroup. The Special Committee, working in consultation with Messrs. O’Neill and McCuistion, has also invested substantial time and resources in attempting to identify strategic alternatives to the Cerberus offer. As of today, the Board, despite its efforts, has failed to produce any other bidders or superior strategic alternatives, and the Cerberus offer is dead without the shareholders having had an opportunity to vote on it.

Shareholders have focused on the fact that they were not permitted to vote on the Cerberus offer. Oppenheimer Funds Inc., a 7% shareholder, stated, “... we were pretty upset we never got a chance to vote.” The absence of any explanation by the Special Committee as to why it did not permit the shareholders to vote on a deal that met all of the Board’s requirements has exacerbated shareholder frustration. Richard Pzena of Pzena Investment Management, the Company’s largest shareholder, commented “I don't know why the Board didn’t respond to us. They were radio silent.” The Special Committee’s delay in responding to the Cerberus offer has also drawn shareholder criticism, with one shareholder questioning if such a delay is consistent with the Board’s fiduciary obligations. The Board’s failure to produce another bidder or superior strategic alternative has called into question the significant time and resources dedicated to the Board’s repeat auction and extensive meetings to consider strategic alternatives.

Shareholders have questioned the long-term impact of the Special Committee’s handling of the Cerberus offer on the business of the Company. Throughout your tenures as directors, you have been informed that public auctions are especially harmful to service companies like ACS. This is the reason why the Board, during its November 9, 2006 meeting, agreed that Citigroup and I should conduct a confidential search for potential bidders. Yet, in a change of tactics and without explanation to date, the Special Committee chose to conduct a public auction instead of taking the deal in hand. As part of that auction process and contrary to management’s firm objections, one of the Company’s key competitors obtained proprietary Company information, even though the competitor was incapable of completing a deal for the Company. Shareholders and management have also attributed the Company’s continuing loss of existing and potential customers to the continuing uncertainty surrounding the Company’s future. For example, Oppenheimer Funds has raised concerns to the Board that the Company’s business may be hurt by the uncertainty caused by having the possibility of a change of control hang over the Company for so long.

Debating the merits of these claims at this point is counter-productive because it would only draw more attention to the existing controversy surrounding the Board. The Board has lost shareholder trust due to its failure to permit the shareholders to vote on the Cerberus offer and its failure to explain its actions and directly respond to shareholder comments to date. The Board must take immediate and decisive action to restore shareholder confidence and resolve customers’ and employees’ doubts regarding the future of the Company. Clearly, changing the membership of the Board is in the shareholders’ best interests, as it will put the existing controversies behind the Company and give the Company a fresh start.

I have attached to this letter a group of replacement directors who have the professional and board experience to return the Company to the right path. Prior to completing a director search, neither I nor any member of management had any relationship or understanding with these directors. If necessary, I stand ready to nominate the attached directors for election at the Company’s next annual shareholders’ meeting on May 22, 2008. Several of the Company’s largest shareholders have indicated their support for these directors, providing them with shareholder support that is well above the majority required for election to the Board. The management of the Company has indicated that it may also take action, including potential litigation, in the interests of the shareholders of the Company.

Choosing to delay your resignation is choosing to continue to perpetuate the uncertainty surrounding the Company’s future. Subjecting yourself and the Company to a proxy contest that you will certainly lose will only destroy more shareholder value and potentially expose you to liability. I am confident that you will make the right choice on behalf of the shareholders and yourselves and resign immediately.

Sincerely,

Darwin Deason

Source: ACS