One of PHI, Inc.’s [Nasdaq: PHIIK, PHII] largest shareholders, Timothy Stabosz, who owns roughly 11% of the company’s non-voting (PHIIK) shares, today released an “open letter to management,” calling on the company to address, and refute, a story published by Debtwire on February 11th. Such letter is provided below in its entirety. Separately, Stabosz announces the publishing of an article analyzing PHI on the Seeking Alpha website on February 1st. The article can be accessed through Stabosz’s profile page on Seeking Alpha at the following link: Timothy Stabosz’s Articles
An Open Letter to PHI Management
February 19, 2019
Dear Al, Trudy, Lance, and Board of Directors:
I am left feeling completely heartsick at the stories emanating from Debtwire the last 4 weeks. It started on January 18th, and has only escalated. The most recent story, dated February 11th, which I was able to obtain a copy of, lurid and phantasmagoric as it is, uses anonymous sourcing (i.e, “sources familiar with the matter”), unattributed innuendo, and even direct statements alleged to have been made by supposed PHI executives, to suggest that you met “face-to-face” with bondholders, and “acknowledged at the meeting that the existing equity would likely be wiped out.” While the Debtwire reporter, when contacted, asserted that you have not “agreed” with the bondholders (and that their proposal had not even been formally made yet), these kind of reports, which represent unidentified 3rd party characterizations of YOUR intentions, that assail YOUR integrity as a management team…..need, deserve, and REQUIRE a public response. In fact, the volatility in PHI stock caused by these reports seems suspiciously timed to suit the needs of short-sellers, in order to generate a “supply of stock” for them to cover their short positions, at precisely a time when there is an extraordinary tightness in supply of available shares for shorting, with reported borrowing rates as high as 575%. This can only make one wonder if Debtwire is being used as a handmaiden for those looking to manipulate PHI stock!
The fact that you have chosen not to respond, despite requests from a number of your largest shareholders urging you to do so, is completely unacceptable, and deeply troubling. Does this mean we are supposed to believe that the Debtwire stories are in fact true? Has CEO Al Gonsoulin now “flipped” on us (as the story suggests), decided that it is time to ride off into the sunset (as long as he gets “his share”), and turn the company over to the bondholders, so that they can sell the pieces to private equity firms, who will, in turn, carve up the company, destroying the widely respected, and renowned, culture of PHI? In such a scenario, bases will be closed, employees will be out of jobs, communities around the country will suffer…and it won’t only be shareholders who are left in the gutter, gnashing their teeth.
I remind you that you made a clear, incontestable, and incontrovertible affirmation, declaration, and PROMISE to your shareholders, when you stated in the most recent Form 10-Q, dated November 9, 2018, that you were aware of “several possible transactions,” that you believed would be able to “help us discharge our short term indebtedness.” You also stated that these “transactions” would not only “improve our liquidity,” but also “ENHANCE shareholder value.” [emphasis mine] I want to formally put you on notice that if you decide to suddenly turn about, lay in bed with the Devil, and sell out employees, shareholders, and other stakeholders, while simultaneously going back on these public pronouncements, disingenuously PRETENDING that there is NO net asset value remaining for shareholders, it will stand as a colossal betrayal of shareholders (both employee and outsider alike), and a monstrous abdication of your fiduciary duties. lt will also be seen as an opportunistic attempt by Mr. Gonsoulin to take advantage of a stock price plunge, from $9.50 to $1.69, this past fall, in order to illegally and immorally squeeze out the shareholders, and cast aside his loyal family of employees, to his own selfish benefit.
It is hard to know for certain whether the faith that I, and so many others, have placed in you, and the reliance that you INDUCED, based upon your statements in the 10-Q, are still valid, because it is utterly confounding, and deeply distressing, that you have not, as of yet, DISCLAIMED and REPUDIATED the series of Debtwire stories. I will again remind you that should you choose to suddenly change your tune and assert a false pretense that there is no equity value, and attempt to engage in a sham process that seeks to seize all the value for Mr. Gonsoulin and the bondholders, on the backs of shareholders and employees, in direct contravention of previous representations you made, you will have violated not only your fiduciary duty, but you will have also nakedly violated the SEC’s prohibition on false and misleading statements. And you WILL be held accountable.
If you have suddenly decided to jettison your most ferociously loyal stakeholders, despite your public assurances matter-of-factly stating your intent to generate liquidity by engaging in one or more transactions that “enhance shareholder value,” I will personally utilize all my resources (and I am aware of up to 50% of the shareholder base that would similarly join me) to ensure that an equity committee is formed, should the board decide in sanctioning Mr. Gonsoulin’s seeking to use a Chapter 11 process to seize the company for himself and the bondholders. In this, you will be subject to a process of court-based discovery, investigating the offers received for the different company divisions, that were (and are) available to you, in an orderly corporate breakup, as well as potential legal claims for acts of gross negligence, bad faith, betrayal of duty of care and duties of loyalty, fraud, and breach of fiduciary duty, in why you failed to take action to maximize the company’s value for its shareholders, and why you deliberately misled shareholders as to your intent in the 10-Q. Such actions, if they rise to a level of indecency that shocks the court, could very well subject you to punitive damages.
Importantly, it is widely known that there is at least one buyer for the company, who currently possess the financial wherewithal to readily REFINANCE the debt, and would be willing to pay a handsome PREMIUM to stockholders, as well. I remind you that your fiduciary duty REQUIRES you to pursue such options…even if it is not what Mr. Gonsoulin should want. I will also say that I have received indications from at least half a dozen former and current executives in the space you operate in and, without exception, each and every one asserts that your Air Medical division is worth at least $400 million. With all of this in mind, I call on you, at this time, to directly and immediately REFUTE the Debtwire story, as the story not only puts words in YOUR mouth that mock your integrity, but it directly negates statements and assurances you made in the 3rd Quarter 10-Q. Such refutation needs to be made in a public press release.
In closing, consider yourself put on notice that your actions are being scrutinized very carefully. Should you use a collapsed stock price as a pretext to wheel about and assert the false claim that there is “no equity value,” in order to engage in a sordid bargain with PHI’s bondholders, while seeking to hinder “price discovery” for the value of PHI’s assets, or for the company as a whole, in a bonafide value maximizing process, such act will be exposed for the fiduciary betrayal that it is. Finally, it is both atrocious and tragic that you continue to fail to see the importance of adequately and appropriately communicating with your shareholder base through public media, which is, in my humble opinion, a large part of the reason, in the first place, that your stock price collapsed this past fall. (I remain available, at any time, to assist you in crafting an appropriate communications strategy, which should include investor conference calls, and management commentary in earnings press releases, about the current results and future outlook [as a bare minimum]).
Very truly yours,
Timothy J. Stabosz
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