ANGLETON, TX -- In the face of an attempt by activist shareholder to seat several new directors, Benchmark Electronics is fighting back.

In a letter to shareholders ahead of its annual meeting next month, the EMS company disputed allegations of poor fiscal management and laid out its case for continuing its current strategy.

In the letter released today, Benchmark called the choice before shareholders one between "proven executive, financial and operational expertise, intimate knowledge of our business, a superior track record of achievement, and a demonstrated commitment to creating value for all shareholders" or short-term gains.

Engaged Capital's claims regarding Benchmark's performance, strategy, and compensation policies, the EMS company added, "are simply wrong."

Benchmark has come under fire by the activist investor, which has been buying shares of Benchmark and now holds nearly 850,000 shares, worth roughly $19 million. While Benchmark makes up a reported 11.4% of Engaged's portfolio, the latter's stake is a fraction of the 49.8 million shares outstanding in the EMS company. 

Among other complaints, Benchmark accuses Engaged Capital's of having a "singular fixation on return on invested capital" (ROIC) as a valuation metric. The EMS firm calls ROIC "important (but) secondary to revenue growth and margin enhancement."

"We believe it clear that long-term EMS shareholders recognize the critical importance of a strategic shift toward higher-value markets. As a result, in the EMS sector, premium valuation multiples are highly correlated to business mix, revenue growth and margin enhancement, and poorly correlated to ROIC." 

Benchmark was formerly heavily weighted toward key telecom and computing customers such as IBM. With its acquisitions of Suntron and the EMS operations of CTS, it has attempted to broaden its markets toward high-reliability industrial, medical and aerospace/defense.

Benchmark's latest letter is a more detailed response but echoes a similar missive issued on Feb. 24.


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