Engaged Capital Delivers Letter To Benchmark Electronics, Highlights Management's 'Lack Of Urgency' In Addressing Concerns

Engaged Capital, an activist investor and major shareholder of Benchmark Electronics, Inc. (NYSE: BHE) announced that it delivered a letter to the company's management back in January.

Engaged Capital owns about 4 percent of Benchmark Electronics and has been pushing the company to make changes that could help boost the stock's value by 50 percent. Specifically, the activist investor believes shares are undervalued given management's inefficient use of working capital and the Board of Director's "undisciplined and unsophisticated" approach to its capital allocation strategy.

Engaged Capital stated in its letter dated January 29 that it's "disappointed" in management's "lack of urgency" in addressing its concerns and opportunities that have been suggested to create shareholder value.

"Specifically, BHE's working capital management remains woefully inefficient compared to peers," Engaged Capital said in its letter. "This inefficiency is not being driven by an inventory management problem – we believe it is simply a product of poor receivables and payables management. BHE is the only EMS company that pays its suppliers faster than it is paid by its customers. What's particularly startling is that if management were to bring BHE's receivables and payables management in line with its closest peer, Plexus Corp, we believe BHE could free up an astonishing $290 million of cash – $5.75 per BHE share – or ~30% of the Company's market valuation."

Engaged Capital added that due to management's inaction, it has "lost confidence" in the company's ability to unlock value in its stock price. As such, the activist fund has nominated four qualified candidates for election to the Board of Directors at the upcoming 2016 annual general meeting.

The candidates include Robert Gifford, a former senior executive at Ingram Micro Inc. (NYSE: IM), Lisa Kelley, Chief Audit Executive at Avnet, Inc. (NYSE: AVT), Jeffrey McCreary, an independent management consultant and Brendan Springstub, a senior analyst at Engaged Capital.

Finally, Engaged Capital stated it is "ready and willing" to negotiate a settlement to avoid a proxy contest and decided to make its January 29 letter public due to the company's refusal to engage with the activist firm "in any meaningful way."