The Board's continuing refusal to perform its responsibilities implicates more than simply its competence. One must ask why the Board is so resistant to even entertain a potential sale of the Company. Of course, such an outcome would eliminate its expensive "public company overhead," including its ten-member Board. Presumably the directors really enjoy these seats - four of them have held them for more than twenty years each. And it's easy to see why: The average director received $314,360 in 2014 Board compensation; the Chairman raked in a cool $425,740. These are extravagant payments, particularly for such a relatively small company and especially when evaluated in the context of their recipients: With two exceptions, all of the directors are either retired and/or self-employed; with the same two exceptions, none sits on any other public Boards; three are over 70 years old (one of those is over 80). As we detailed in the Second Letter, the independent directors have also been very heavy sellers of Company stock. Shareholders are entitled to question whether directors' personal needs are impairing their ability to act in shareholders' best interests.The Board desperately needs professional advice. We have repeatedly urged Air Methods to retain a credible financial advisor to assist in evaluating all options to enhance shareholder value. Its failure to do so is particularly inexcusable in light of its simplistic, and often errant, grasp of key concepts. These include its misunderstanding of how equity investors balance risk and reward in a small capitalization stock such as Air Methods; its inability to distinguish between real and nominal valuations; and its mispricing of risk. The Board also labors under some fairly significant M&A misunderstandings such as its devotion to the myth that premia in private equity transactions are capped at 25%; that one should only initiate a sales process when trading at a 52-week high; and other such flumadiddle. Incredibly, having refused to address a single point raised in any of our meetings or detailed letters, the Board has floated a request that we deliver our financial models to the Company for inspection. That's exactly why the Board needs an advisor - so it can obtain professional advice and analysis, instead of relying on our word or its own intuition. Rather than dabbling with such gamesmanship, the Board should get on with the work at hand. 4 The Board should expect shareholders to hold it accountable. The Board has surrounded itself with an armamentarium of entrenchment devices designed to limit shareholders' influence. 5 Yet three of its ten directors still must stand for reelection in 2016. These include the Chairman, Mr. Kikumoto, who has been a director for 11 years; Mr. Belsey, the Company's former CEO, its Chairman until October 2011 and a member of the Board since 1992; and Mr. McNair, a director since 1996. They and their colleagues should remember that a Company sale is neither an admission of failure nor a defeat. Many great companies are built, achieve success and reward their owners along the way until reaching the point where value can best be maximized through a change of control. The approximately 50% increase in shareholder value that our analysis suggests is achievable would be such an outcome and should be sought rather than dreaded. What better way for a very long-standing Board, such as this one, to go out on a high-note and in grand style? On the other hand, some companies (and directors) overstay their welcome, and shareholders suffer as the asset begins to decline in value. A strong Board recognizes this turning point and embraces the opportunity that it represents, while a weak one fails to see it or, even worse, stubbornly attempts to resist it. Shareholders are about to discover which type of Board they have elected at Air Methods and will decide whether it properly represents their best interests going forward.
Respectfully yours,VOCE CAPITAL MANAGEMENT LLC J. Daniel PlantsChief Investment Officer About Voce Capital Management LLC Voce Capital Management LLC ("Voce") is a fundamental value-oriented, research-driven investor. Founded in 2011, the San Francisco-based firm is 100% employee-owned. 1 See, e.g., Oppenheimer (September 16, 2015) ("Voce Capital Management references a private market value for Air Methods of $55-60/share. This is consistent with our report from May 8, 2015 that suggested the same value range. . . . [W]e continue to believe this company is undervalued and the pursuit of strategic alternatives would unlock that value. . . ."); William Blair & Co. (September 16, 2015) ("[O]ur analysis indicated a similar $54 price target as reasonable in an LBO scenario."). 2 Our Third Letter drew a slightly longer non-response that said essentially the same thing (i.e., nothing). It too filled less than a page. 3 Following the brief spike in the stock after we released the Second Letter, the stock has fallen 7.2% while the S&P 500 (represented by the SPY ETF) has risen 2.3% (covering September 17-October 19, 2015). Some 30% of the Company's shares were sold short as of September 30, 2015, the most recent reporting date. 4 We'd like to believe this ploy originated from a clever advisor rather than the Company itself. 5 The Company has adopted a "staggered" Board with three-year terms, a prohibition on shareholders' ability to call special meetings or solicit consents, an inability of shareholders to remove directors and a plurality election standard which reelects directors even if they fail to receive a majority of the votes cast. None of these represent best governance practices and, taken together, reflect an autocratic governance posture at odds with the Board's mellifluous tune about receptivity to shareholder concerns.