J. Carlo Cannell calls himself an investor, not an activist shareholder. It's an important distinction.
Activists are not always the most credible voices on an upcoming shareholder vote. The chance to make a profitable trade by raising a ruckus is the only reason they bought a stock in the first place.
Cannell is a hedge fund manager who makes his money by investing.
That alone makes his opinion in the run-up to the June 18 vote on competing slates of directors at ValueVision Media worth hearing.
And in a short letter to the company's chairman, attached this week to a filing with the Securities and Exchange Commission, Cannell was clear that he wasn't happy with how the incumbent directors and officers at Eden Prairie-based ValueVision spend his money.
He wrote that he once worked at a big bank and was amused to watch the officers insist on flying first class for business trips, but when they flew their families on their own dime they flew everybody in coach.
This reminded him that how officers of a public company treat other people's money, the shareholders' money, tells him a lot about how wisely they manage the business.
So what could be the explanation for spending more than $3 million on fees for lawyers, public relations counsel and the like to defend the company and its incumbent board?
"What were you thinking?" he demanded, in the letter addressed to board Chairman Randy Ronning. "Concerned shareholders want to know! After all, most of this outlay was to preserve your jobs."
Cannell said this expense may not by itself be worth tossing management and the board, although he added that it wouldn't be a justifiable expense even at a $20 billion company.
His point is that it shows that the management team and its board shouldn't be trusted with the company's checkbook.
These expenses happened to be disclosed so he and any other investor could see them. How much more is being spent on items that had no value to shareholders that he can't see? Any first class airline travel?
"You can't reform that," he said, of a management team's free-spending ways. "It has to come from the top."
Along with his letter he decided also to mail Ronning a copy of "Memos from the Chairman," the writings of Alan "Ace" Greenberg, longtime leader of the investment bank Bear Stearns. A used copy.
Among other things, Greenberg was known for his frugality. Cannell cities Greenberg as noting that any dollar saved in a private business falls to the bottom line, but any dollar saved at a publicly held one not only falls to the bottom line, it's multiplied in value by the earnings multiple of the stock.
His letter was only a couple of lines longer than a page, but Cannell also decided to add footnotes. One asked, "Why do you insist on allocating the lavish cost of the fancy jerk chicken fondue at the fancy pants Redstone American Grill in Eden Prairie when your customers eat walleye at Nye's Polonaise across the Mississippi?"
An unconventional approach
Cannell, a well-known figure among Minneapolis analysts and brokers, has been spotted in the old-school Nye's restaurant in northeast Minneapolis. Using it as a metaphor for good management would seem to be an unconventional approach for an SEC document, but Cannell appears to be a bit of an unconventional hedge fund manager.
He once returned some capital to his clients when he suspected his funds were getting too large, and a presentation he later made to a value investor conference made quite an impression, too.
He entitled it "Hydrodamalis Gigas," for an extinct marine mammal better known as the Steller's sea cow. It was a particularly obscure way to introduce one of his investment approaches, of betting against the stocks of companies that are finding it very difficult to adapt to a changing environment.
Cannell looks to invest capital in companies that have been neglected by the rest of the investment community. One of the things he looks for is how many investment firm analysts write research on a company. Zero is fine.
It means there's a greater chance that there may be value in a company's stock that few others in the capital markets see.
Cannell Capital is formally based in Wyoming, and its funds now own about 5.6 percent of the shares in ValueVision. Cannell first surfaced as a major shareholder in fall 2012.
Cannell briefly allied his firm with the Clinton Group, the New York-based activist leading the fight to replace the ValueVision board. That agreement was eventually terminated; he declined to discuss why.
In response to Cannell's letter, the company's spokesman noted that the two firms had previously worked together to get ValueVision to call a special shareholders meeting.
"Although we made several attempts to reach a settlement with Clinton and Cannell, and to prudently manage our expenses, we believe it is important that all shareholders realize how the ValueVision management team and board have worked together to transform the company and drive shareholder value," the spokesman said in an e-mail.
Cannell said he doesn't really relish writing critical letters to a board chairman, or pitching in on proxy fights.
"I guess I'm OK with it," he said. "But we make a lot more money investing with people who don't have to be told what to do."