Activist Track: Chapman Takes On Texas

The most anticipated 13D filing of the summer broke last night, and a brief excerpt of this filing may clue you in to the activist:

To be honest, I begin to retch at the image of my flying into Dallas to attend a board meeting as a minority director, outweighed by the group-think-driven crew listed in the addressee section above. I have nightmares involving my choking down gourmet tuna sandwiches and uninformed, "long term" business judgments, both being served in abundant quantity by you and your Texas "pardners."

Yep you guessed it; Robert Chapman of Chapman Capital is at it again. Chapman restarted his fund after a two-year hiatus since breaking his back in a surfing accident and then traveling the world after his recovery. Previously, his 13D filings were anxiously read by investors and feared by CEOs. Bob once told me, "Before I would file a 13D filing, I would call a CEO and let him know, 'Your life is about to change.'" Nobody wants to be on the other side of that call, because their lives are not going to change for the better.

His target is Carreker Corporation (CANI - commentary - Cramer's Take), a small-cap company that provides payment-related software and consulting solutions to financial institutions and financial service providers worldwide. According to Chapman's filing, he owns 5.6% of the 25.33 million shares outstanding, at an average price of $5.53. But, as ever with Chapman activism battles, it's best to let him do the talking.

Chapman begins the filing by stating: "To put our ownership into perspective, our hedge funds' financial interest in Carreker's common equity now exceeds non-family/Prescott directors' ownership by a factor of nearly 5-to-1. Interestingly, Carreker's insiders seem to have enjoyed extraordinary wealth by selling shares to new, potentially less-informed public shareholders."

Family-run companies always make for an interesting activist case, especially when there is nepotism and weak family ownership.

Chapman then says: "Chapman Capital believes that Carreker's long-time (i.e., excluding recently appointed) Board of Directors has been decidedly derelict in its duty to maximize the long-term value of the Company. Nearly one year ago on July 6, 2005, Prescott Group Capital Management, L.L.C. (hereinafter, 'Prescott'), then and now a 7.2% owner of Carreker 14 having paid approximately the market price at that time 15 of $5.70 per share 16, publicly noted that 'several direct competitors to the Issuer have recently been sold at significantly higher valuation metrics than the Issuer current enjoys. Following this latest year-long episode of a five-year horror show produced by you and the pre-Watkins Board, we hereby petition that Carreker immediately retain an investment bank to evaluate and subsequently consummate the most attractive of a variety of strategic alternatives.'"

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James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and Trade Like Warren Buffett. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

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