Starboard’s Winning Streak (Part 3 of 3): Takeover of Merit Medical System’s Board

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In previous weeks, we covered Starboard’s activity in refreshing the boards of GCP and Commvault; now we turn our attention to Merit Medical Systems.

In late May, Starboard struck an agreement with Merit Medical, successfully nominating 3 newcomers to Merit’s board. Starboard has significant clout at Merit, owning ~8.7% of outstanding common stock. Since Starboard first filed on Merit in January, the stock has gained over 28%. 

As part of the agreement, 3 directors have departed and 3 new directors have joined (recently made official at their shareholder meeting), with the total board being downsized to 9 directors. The departing directors had a decent track record, on a total shareholder return basis (TSR), while the new ones have something to prove:

  • Nolan E. Karras (director since 2011) and David M. Liu (director since 2016) did not stand for re-election
    • Karras, 74, saw a 15% annualized TSR for MMSI over his nearly 9 years as a director at MMSI
    • Liu, 46, saw a 22% TSR over his tenure
  • Franklin Miller, 79, (director since 2005) resigned and carried a 9% TSR
  • Kent W. Stanger, 64, a founder of Merit Medical, also did not stand for re-election (though that was announced prior to the agreement)

Fresh faces looking to unlock value

The 3 new Starboard-nominated directors are Lonny Carpenter, David Floyd, and James Hogan:

  • Carpenter, 58, a former US Army Captain, is a 30 year veteran of Stryker Corporation
    • As a board director at Novanta (NOVT) since 2018, the company has returned 32% annualized
  • Floyd, 59, is also a veteran of Stryker is also a director at NN, Inc. (NNBR) where the going has not been so great
    • NN has seen -22% annualized TSR since he joined the board in 2016
  • Hogan, 63, previously worked for Medtronic PLC, and prior to that founded multiple medical device companies. Hogan has been a member of Prolung and Xenocor’s boards since 2019. 

So, while the new directors bring mixed public-board performance, the company's recent stagnant performance left them ripe for attack. It's also worth noting that the last officer or director to buy stock of any significance was Ronald Frost (COO) in July of 2019 (see full buys/sells/awards at our Insider Tracker

In response to the changes, Fred. P Lampropoulos, chairman and CEO of Merit Medical since 1987, stated: “...each bring industry experience and perspectives that we believe will support our mission of enhancing shareholder value. The actions we have taken across the company are already yielding positive results, including increased efficiency and progress towards operating margin improvement, as part of our goal to become a leaner, more efficient growth company.”

Jeffery Smith, Starboard CEO, said: “I am confident the appointment of these new directors will bring additional insights and valuable expertise as Merit focuses on improving profitability and growth. We look forward to continuing to work closely with management and the Board as we pursue our common goal of enhancing shareholder value.”