Sparton Corp. CEO departs after activist shareholder complaints

On a Sparton Corp. earnings call last week, CEO Cary Wood got an earful from shareholders of the defense supplier and medical industry manufacturer. Its stock had soared 20-fold after a controversial headquarters move to suburban Chicago. But since last fall, shares have plunged by half on sputtering earnings reports and concerns over business prospects.

One shareholder, Ross Taylor, of Somerset Capital in New York, was unequivocal: "Your board needs to step up to the plate and do what's right, or we need to find directors who will step up to the plate and do what's right because the continuation of this do-nothing approach when there is a massive value sitting here being wasted away by short-term issues on really what is not the attractive part of the business, is beyond comprehensible."

The board acted on Friday. Sparton said that Wood had resigned and so had Michael Osborne, senior vice president for corporate development. Share prices dipped about 20% today to about $12.

What's next

Sparton, which evolved over more than a century from a farm and auto industry supplier, makes submarine-tracking sonobuoys and electrical components. Analyst Andrew Huang of B. Riley in San Francisco, says that while sonobuoy segment is a “very strong” cash cow, the rest of the business “is under a lot of pressure.”

The company said the board had hired an executive search firm to find a new CEO and had appointed its chairman, Joseph Hartnett, as interim CEO. Director James Swartwout was named to succeed Hartnett as chairman. Hartnett, who is about 60, is a former CEO of dot-com era modem maker U.S. Robotics Corp.

A message left on Wood's voicemail at Sparton wasn't returned. In a 2014 Crain's story on his role in Sparton's move from Michigan to Schaumburg, the former General Motors and private equity manager said: "I'm a type-A, hard-charge, run-hard, balance-a-lot-of-plates kind of guy. That's just how I'm wired."

Chief financial officer Joseph McCormack, designated as a Sparton media contact, did not respond to a message.

Though Sparton's revenue has continued to climb after three consecutive years of losses—to an estimated $434 million for the fiscal year ending in June—net income fell 4% last year to $12.6 million and is expected to drop to $10.2 million this year, compared with $16.8 million in fiscal 2011.

Activists like Taylor argue that directors blindly back management without significant stakes of their own in Sparton and haven't done enough to boost value through asset sales or share repurchases.

On the earnings call, Taylor calculated the company's valuation at between $30 and $40 per share, and warned Wood: “If I were to replace your board with my 16-year-old daughter and (a) small pack of knowledge carriers, they could probably get the stock up 50 percent to 100 percent before the end of this quarter.”

Wood replied: “Understood, Ross.”

"Sparton Corp. CEO departs after activist shareholder complaints" originally appeared in Crain's Chicago Business.



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