Five Board Members Resign Under Pressure from ACS Chairman

Board members defend their handling of failed buyout in harsh letter to Deason.
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Update from 2:40 PM EDT

SAN FRANCISCO -- In more fallout from the failed buyout of

ACS

(ACS)

, five members of the company's board have relented to calls for their resignation, but not without lobbing their own accusations and defenses at their fiercest critic, the company's chairman.

In a harshly worded letter to board chairman Darwin Deason, the company's founder and largest individual shareholder, Robert B. Holland, III, J. Livingston Kosberg, Dennis McCuistion, Joseph P. O'Neill and Frank A. Rossi said that Deason's criticism over their handling of a buyout offer made it impossible to continue serving as independent ACS directors. They intend to resign and relinquish plans to stand for reelection. No date has been set for their departure.

They also said they are willing to meet with Deason's proposed replacements Friday.

Their letter accuses Deason of running a "carefully choreographed power play ... to coerce the independent directors of ACS into resigning on the spot."

"Your ultimatum: resign in one hour or I will go to the press and smear your reputations - was a remarkable piece of bullying and thuggery, and it almost worked," the directors wrote in their letter.

The directors' letter comes in response to one penned by Deason alleging that a special committee of the board mishandled a buyout offer from the private equity firm Cerberus Capital Management and Deason himself, and botched attempts to hold a public auction that would have garnered a better offer for shareholders.

Three of the ousted directors -- Rossi, Kosberg and Holland -- had composed a special board committee to evaluate Cerberus' proposal and solicit other bids.

Deason, ACS' largest individual shareholder, controls over more than 40% of its voting shares. In his letter, Deason said that the directors had lost the confidence of ACS' largest shareholders, Pzena Investment Management and Oppenheimer Funds. Representatives of these funds have publicly said that the board rebuffed attempts to discussion Cerberus' proposal.

Deason also blamed the directors' approach to the buyout for hindering ACS' ability to sign new contracts because clients may have worried that uncertainty over an ownership transition would hinder the company's operations.

Throughout the year, the company's new contract signings, a proxy for its ability to generate business, has fallen by 20% to $607 million.

The buyout offer began to founder amid the bickering between the board the Deason, but lost most of its steam as the summer's credit market turmoil raised the cost of funding a buyout.

As a result, ACS' stock has shed almost $12, or 19%, from the level it reached in April near the sweetened $62-a-share offer. Cerberus officially withdrew its bid on Tuesday.

In their defense, the directors said that Deason's attempt to force the committee to respond to the Cerberus proposal would have served his personal interests, and hampered their attempts to negotiate with other bidders.

Shares plummeted $1.98, nearly 4%, to $48.68 at the close of trading Thursday, amid a sharp sell-off in stocks.