Big Sphere 3D shareholder tosses activist letter in firm's lap
Full restructuring needed, it says
+Comment Cyrus Capital Partners, a major Sphere 3D shareholder, has filed a highly critical public letter calling for a full restructuring of the company to fix "cost" and "under-performance" issues.
Sphere 3D is the aggregation of Overland Storage, Tandberg Data tape and disk data protection products, Snap storage products and Glassware software virtualization. It has been put together by CEO and chairman Eric Kelly, to whom the Cyrus letter is addressed. Sphere 3D's latest loss-making quarterly results are typical.
In its results statement earlier this week it announced it had received two offers to buy parts of the business. A few days later, Cyrus Capital Partners sends its letter, filed with the SEC, calling for a restructuring, and stating:
Recently, we have become frustrated with numerous aspects of Sphere management's ability to address the Company's operating and costs structures as·well as its ability to grow its revenue. This has led to significant financial hardships that, in our view, have endangered the Company's long-term viability.
It says: "We are at an internal level, discussing various strategic alternatives, including potential merger and acquisition candidates, financing arrangements and balance sheet optimization tactics that we believe will benefit Sphere and its shareholders."
Cyrus wants six actions taken:
- Separation of Sphere assets into distinct operational segments,
- Creation of wholly owned subsidiaries of Sphere to hold the assets related to each distinct operational segment,
- Exchange certain debt of the Company (including debt currently held by Cyrus) for equity interests in Sphere or such newly-formed subsidiaries,
- Modification to Sphere's existing management and executive compensation arrangements and roles,
- Address the revenue growth issues across all of Sphere's businesses,
- Provide additional financing to certain businesses of the Company, subject to the conditions outlined above.
The letter goes on to say: "Given this recent divergence of views between Cyrus and Sphere, Daniel J. Bordessa, who is a partner at Cyrus, has decided to resign from his position on the [Sphere 3D] Board before any conflicts arise."
The final paragraph of the letter says:
Cyrus believes that the businesses of Sphere are currently significantly underperforming their potential and that a restructuring of the Company on the basis outlined in this letter would allow Sphere to reach its full potential substantially increasing and maximizing shareholder and stakeholder value. We look forward to working constructively with the Board and management team in the near future.
It's hard to see how removing its board rep will help Cyrus work constructively with Sphere 3D's board and management.
Cyrus's problem is compounded by the fact that it is a lender of dollars to Sphere 3D, and both Cyrus's shares and loans are potentially at risk. ®