Krensavage Takes Disagreement With RTI Surgical Public

The hedge fund Krensavage Asset Management LLC, a 6 percent shareholder of RTI Surgical Inc., has been lobbying for more control over the Alachua, Fla.-based orthopedic implants company in recent months. Part of its efforts has been spent trying to replace certain board members with its own choice nominees.

In February, in response to the hedge fund’s suggestions for who to place on the board, RTI’s Curt Selquist said, “Our nominating and governance committee evaluates all potential director candidates, whether recommended for election by the committee or by shareholders, using a thorough process to identify individuals who it believes, in addition to possessing qualities such as integrity, ability, and judgment, will enhance the company’s ability to generate shareholder value.”

At the time of that statement, Selquist was chairman of the board nominating and governance committee and operating partner with Water Street Healthcare Partners, another RTI investor. In March, Selquist was appointed as chairman of the board, at which time, Krensavage applauded the decision. Now, however, Krensavage Asset Management has called into question Selquist’s ties with board members that the hedge fund believes have hindered RTI’s performance.

On April 1, RTI disclosed the departure of two board members. A total of three board members have left since Krensavage Asset Management launched its campaign to shake up governance at RTI. RTI filed a proxy statement nominating three replacements, none of whom Krensavage Asset Management recommended—and the hedge fund is very unhappy, to put it mildly.

The three proposed new board members are podiatrist Jonathon M. Singer, CEO of Roka Science Inc. Paul G. Thomas, and CEO of West Health and previous Johnson & Johnson veteran Nicholas J. Valeriani. The votes will take place at the shareholder meeting on May 26.

As Krensavage Asset Management sees it, its goal is to “improve corporate governance” and “reconstitute the board with its slate of highly qualified directors.” The company stressed in a press release that it “continue[s] to propose highly qualified independent directors.”

“We were naïve to hope that a board that we believe has harmed shareholders for years would reverse course and allow shareholders to recommend independent directors who would buy stock with their own money and act in the interest of owners instead of management,” said Michael P. Krensavage, managing member of Krensavage Asset Management.

Krensavage also holds that the RTI board has failed to hold CEO Brian K. Hutchison accountable for what it calls the company’s “lackluster financial results, bungled acquisitions, and erosion of shareholder value under his 14-year tenure.” He has suggested Hutchison retire.

Krensavage Asset Management officials said, “We aren’t trying to elect ourselves to the board. We aren’t trying to elect our friends. We aren’t trying to make new friends…We knew none of our proposed candidates before beginning our search. We simply want qualified candidates who will act in the interest of shareholders.”

RTI is standing by its proposed slate of new directors. An RTI spokesperson told ODT, “RTI is open to constructive input from all of our shareholders, and we respect the right of shareholders to nominate directors. We are confident that our proposed slate of directors, which was identified after a thorough evaluation by our independent nominating and governance committee, comprises the best candidates to oversee our business and enhance value for all our shareholders and our other stakeholders.”