Company Name: NDCHealth Corp.
Public Availability Date: August 5, 2004Document Sections:
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
STAFF REPLY LETTER [INQUIRY LETTER]
June 7, 2004 Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington DC 20549 Re: NDCHealth CorporationOmission of Shareholder Proposal Pursuant to Rule
14a-8 Dear Sir or Madam: We are writing on behalf of our client, NDCHealth Corporation, a Delaware
corporation (the "Company"), pursuant to Rule 14a-8(j) under the Securities
Exchange Act of 1934, as amended, to respectfully request that the Staff of the
Division of Corporation Finance (the "Staff") of the Securities and Exchange
Commission (the "SEC") concur with the Company's view that, for the reasons
stated below, the proposal (the "Proposal") submitted by MMI Investments, L.P.
(the "Proponent") may properly be omitted from the proxy materials (the "Proxy
Materials") to be distributed by the Company in connection with its 2004 annual
meeting of shareholders (the "2004 Annual Meeting").
Pursuant to Rule 14a-8(j)(2), I am enclosing six copies of each of the
following: (i) this letter; (ii) the Proposal and the Proponent's letter dated
April 28, 2004 transmitting the Proposal (the "Proponent's Letter"), attached
hereto as Exhibit A; and (iii) a letter dated May 4, 2004 from Randolph L.M.
Hutto, Executive Vice President of the Company, to the Proponent pursuant to
Rule 14a-8(f) (the "Rule 14a-8(f) Letter") regarding the Proponent's failure to
comply with the eligibility requirements of Rule 14a-8(b), attached hereto as
Exhibit B. In accordance with Rule 14a-8(j), a copy of this submission is being
sent simultaneously to the Proponent. I. Introduction
The Proponent's Letter stated that the Proponent is the record owner of
2,296,500 shares of the Company's stock. Such ownership is also disclosed on
Amendment No. 1 to Schedule 13D, filed by the Proponent with the SEC on April
28, 2004, the date on which the Proposal was submitted. The Proponent's Letter,
however, expressly acknowledges that, as of the date of such letter, the
Proponent is not in compliance with the one-year holding period requirement of
Rule 14a-8(b)(1). The Proponent also has failed to state its intention to
continue to hold its shares of the Company's stock through the date of the 2004
Annual Meeting. II. The Proposal May Be Excluded Because the Proponent Does Not Meet the
Eligibility Requirements of Rule 14a-8(b) Rule 14a-8(b)(1) requires that the Proponent has "continuously held at least
$2,000 in market value, or 1%, of the company's securities entitled to be voted
on the proposal at the meeting for at least one year by the date [the proponent]
submit[s] the proposal." In addition, Rule 14a-8(b)(2) requires the Proponent to
submit a written statement that it intends to continue to beneficially own such
shares through the date of the 2004 Annual Meeting in order for the Proposal to
be properly submitted. See Division of Corporation Finance: Staff Legal Bulletin
No. 14, Section C.1.d. (July 13, 2001). According to the Proponent's Letter, as of the date thereof, the Proponent was
not in "compliance with the holding requirement of SEC Rule 14a-8." Such
requirement includes the minimum one-year continuous holding period. Within 14
days of the Company's receipt of the Proponent's Letter, in accordance with Rule
14a-8(f), on May 4, 2004, Randolph L.M. Hutto, Executive Vice President of the
Company, sent the Rule 14a-8(f) Letter to the Proponent by Federal Express
overnight delivery. The Rule 14a-8(f) Letter advised the Proponent that the
Proposal does not comply with certain provisions of Rule 14a-8(b). Specifically,
the Rule 14a-8(f) Letter notified the Proponent that because the Proponent was
not the record holder of at least $2,000 in market value, or 1%, of the
Company's stock for a period of one year prior to the submission of the
Proposal, if the Proponent owned additional shares of the Company's stock
beneficially but not of record, the Proponent must, within 14 calendar days of
its receipt of the Rule 14a-8(f) Letter, submit a written statement from the
record owner of such shares verifying its continuous ownership of at least
$2,000 in market value, or 1%, of the Company's voting stock for a period of at
least one year prior to the date of the Proponent's submission of the Proposal.
The Rule 14a-8(f) Letter also informed the Proponent that within 14 calendar
days of its receipt of such letter it must furnish a written statement to the
Company that it intends to continue to hold such stock through the date of the
2004 Annual Meeting. We have confirmed that Federal Express delivered the Rule 14a-8(f) Letter to the
Proponent on May 5, 2004. Pursuant to Rule 14a-8(f), the Proponent was required
to furnish the requested information on or before May 19, 2004. The Proponent
did not furnish the written information requested in the Rule 14a-8(f) Letter
within the required 14-day period (and has not furnished such information to
date). The Staff has consistently concluded that a company may exclude a proposal
pursuant to Rule 14a-8(f) for failure by the proponent to comply with Rule
14a-8(b). See Transocean Inc. (March 7, 2003) (proper to omit proposal because
proponent held shares for only eleven months prior to the proposal submission
date); AutoNation, Inc. (Mary 14, 2003) (proper to omit proposal when proponent
held shares for two days less than the one-year period). See also CNF Inc.
(January 12, 2004) (proper to omit proposal because proponent failed to respond
to the company's "request for documentary support indicating that the proponent
has satisfied the minimum ownership requirement for the one-year period required
by Rule 14a-8(b)"); Atlas Air Worldwide Holdings, Inc. (March 14, 2003) (proper
to omit proposal because "proponent failed to supply, within 14 days of receipt
of Atlas Air request, documentary support evidencing that he satisfied the
minimum ownership requirement for the one-year period as of the date that he
submitted the proposal as required by rule 14a-8(b)"); Eagle Food Centers, Inc.
(March 14, 2003) (proper to omit proposal because "proponent does not satisfy
the minimum ownership requirement for the one-year period specified in rule
14a-8(b)"); Halliburton Company (March 7, 2003) (proper to omit because
"proponent appears not to have responded to Halliburton's request for
documentary support indicating that the proponent has satisfied the minimum
ownership requirement for the one-year period required by rule 14a-8(b)");
Nextel Partners, Inc. (March 3, 2003) (same); Avaya Inc. (December 4, 2001)
(same); The McGraw-Hill Companies, Inc. (November 26, 2001) (same); and
Anthracite Capital, Inc. (March 29, 2002) (same). Similarly, the Staff has consistently permitted companies to exclude a proposal
where the proponent has failed to submit a written statement to the company that
he or she intends to continue beneficial ownership through the date of a
company's annual meeting of shareholders. In such cases, the Staff found that a
proposal was properly excludable under Rules 14a-8(b) and 14a-8(f) and granted
relief without giving the proponent an opportunity after the expiration of the
applicable 14-day period to comply with the requirements of Rule 14a-8(b)(2).
See, IV AX Corporation (March 20, 2003) (proper to omit proposal because
proponent failed to provide written statement that he intends to hold company
stock through the date of shareholder meeting); Exxon Mobil Corp. (January 23,
2001); Exxon Mobil Corp. (January 16, 2001); McDonnell Douglas Corp. (February
4, 1997); Ashland Inc. (November 14, 1996); AmVestors Financial Corp. (January
3, 1996); and International Business Machines Corp. (November 22, 1995).
III. Conclusion For the reasons discussed in this letter, the Company requests that the Staff
concur with the Company's view that the Proposal may be properly omitted from
the Proxy Materials under Rule 14a-8(f) because the Proponent failed to satisfy
the one-year minimum holding period requirement of Rule 14a-8(b), and has failed
to submit the required written statement that the Proponent intends to hold its
shares through the date of the 2004 Annual Meeting in violation of Rule
14a-8(b). Should the Staff disagree with the Company's position, or require any
additional information, we would appreciate the opportunity to confer with the
Staff concerning these matters prior to the issuance of its response.
If the Staff has any questions or comments regarding the foregoing, please
contact the undersigned at 212-735-2596, or, in my absence, Daniel E. Stoller of
this firm at 212-735-3360. Very truly yours,
/s/ Eric L. Cochran
cc: Mr. Clay Lifflander
President, MMI Investments, L.P.
Mr. Randolph L.M. Hutto
Executive Vice President, NDCHealth Corporation [APPENDIX 1]
EXHIBIT A MMI INVESTMENTS, L.P. April 28, 2004
Board of Directors
NDCHealth Corporation
NDC Plaza
Atlanta, Georg a 30329-2010 Dear Members of the Board:
MMI Investments, L.P. is the owner of 2,296,500 shares of NDCHealth Corporation
common stock, as reflected in our enclosed Schedule 13D and Amendment No. 1
thereto, which are being filed today. Enclosed herein is the text of a
shareholder resolution we wish to be carried in NDC's forthcoming proxy
statement for consideration by shareholders at the 2004 Annual Meeting. We first
acquired more than $2,000 worth of NDC stock on July 10th, 2003 and believe we
are presently among NDC's top five shareholders. We have provided our proposal
in advance of the April 30thdeadline for submission and will have held a
substantial portion of our current position for well over a year by the expected
date of publication of the 2004 proxy and the expected date of the Annual
Meeting. While we are not in strict compliance with the holding requirement of SEC Rule
14a-8, we trust that you will not rely on a technicality to inhibit your
shareholders from voting on this important matter that goes to the heart of your
primary fiduciary duty as Directors - the obligation to enhance shareholder
value. We have proposed that NDC hire an Investment Banker to analyze all strategic
alternatives available to the Company to maximize value for shareholders. We
have proposed this now to meet your deadline for inclusion in the 2004 proxy,
but are mindful that another two quarters will pass before shareholders vote on
our proposal. If by the Annual Meeting management and the Board have not shown
significant progress in executing their chosen growth strategy, a process should
begin to take the logical steps toward maximizing shareholder value. Just
because management and the Board proposed an "Eight Quarter Plan" does not mean
shareholders should sit idly by for two years without any demonstrable progress.
The concerns of shareholders and Wall Street about NDC's progress in achieving
its Eight Quarter Plan are well-founded. Performance in the first three quarters
has not met management's targets, with slowing growth in Network Systems and
Services and skyrocketing data cost margins in Information Management.
Management has already had to revise its 2004 revenue guidance downward and
suspend earnings and cash flow guidance altogether despite already deflated
expectations due to European expansion costs and weak domestic pharmaceutical
manufacturer spending. We are concerned that this signals an imminent suspension
or revision of the Eight Quarter Plan's stated targets altogether.
In the meantime, NDC management's credibility has been marred once again by a
failure to meet its announced targets - the second time in a year. We are
concerned that the Company is fast approaching a critical mass of frustration
for its investors and research analysts wherein no target is to be trusted and
no positive improvement will be rewarded. If this is a possibility now, we fear
that continued failure to meet management and the Board's stated objectives will
make it a certainty. As one of NDC's largest shareholders, we believe there is (and has been for too
long) a severe disconnect between NDC's market capitalization and the true
intrinsic value of its strong cash flow generation capabilities, leading market
positions and potential for operating leverage. We also strongly believe,
however, that without *****. [APPENDIX 2]
Shareholder Resolution RESOLVED, that the shareholders of NDCHealth Corporation (the "Company" or
"NDC") request that the Board of Directors engage a leading investment bank to
analyze, and provide a written report to the full Board on, all strategic
alternatives available to the Company for maximization of shareholder value,
including but not limited to acquisitions, divestitures, recapitalizations and
sale to or merger with a third-party. Supporting Statement
We believe NDC's shares trade at a value which does not recognize the strength
of NDC's underlying businesses. At the time of submission of this proposal
(April 28th, 2004), NDC's multiples of EBITDA and earnings are 25%-45% below
its self-defined peer universe (presented in its proxy statement), in spite of
its leading position in transaction services, #2 position in information
management and an EBITDA margin more than 75% above its peers' average.
Furthermore, despite NDC's significant attractireness to potential acquirors,
its multiple of LTM EBITDA is less than 1/2 the average of acquisitions in its
industry. Were NDC valued at its peers' average trading or acquisition
multiples, the share price would double. With the "Eight Quarter Plan" already well underway, we believe NDC management
has failed to deliver, casting significant doubt on management's ability to
achieve their announced goals. We believe, based on past performances, that NDC
as currently organized and managed is likely to continue to lag its peers in
performance and valuation and to produce continued poor returns for NDC
shareholders. Clearly the states quo is unacceptable: 1. Weak Stock Performance - NDC stock is nearly 20% below its level of five
years ago and nearly 30% below two years ago. The average stock price
appreciation among NDC's peers is 2% and 11% over those periods, respectively.
Even during 2003 when NDC rose 29% (rebounding from significant weakness in
fall, 2002), its peers averaged a 56% gain. 2. Financial Underperformance - NDC is nearly four quarters into management's
"Eight Quarter Plan," and already showing negative progress with slowing growth
(30% lower for the first three quarters of fiscal 2004 compared with the first
three quarters of fiscal 2003) and rising expenses (data costs are averaging 13%
higher, with total SG&A margin 120 basis points higher).
3. Management Failures - Management's ability to forecast has been called into
question again by a missed estimate (the second time in a year) and its
suspension of 2004 earnings guidance - in spite of its attempted shift to a more
predictable recurring revenue model. This has further marred the credibility of
a team whose auditors recently forced it to change accounting practices,
inviting an SEC inquiry and multiple class-action lawsuits.
The best recourse for shareholders is for a leading investment bank to analyze
all options available to NDC and execute a strategy to unlock its significant
intrinsic value. This proposal is precatory and its passage cannot compel
action. However, a substantial vote in favor should be regarded as a mandate to
the Board. SEND A STRONG MESSAGE TO MANAGEMENT AND THE BOARD. PLEASE VOTE "FOR" THIS
RESOLUTION. [STAFF REPLY LETTER]
August 5, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: NDCHealth Corporation Incoming letter dated June 7, 2004
The proposal requests that "the Board of Directors engage a leading investment
bank to analyze, and provide a written report to the full Board on, all
strategic alternatives available to the Company for maximization of shareholder
value, including but not limited to acquisitions, divestitures,
recapitalizations and sale to or merger with a third-party."
There appears to be some basis for your view that NDCHealth may exclude the
proposal under rule 14a-8(f). We note that the proponent failed to supply,
within 14 days of receipt of NDCHealth's request, documentary support
sufficiently evidencing satisfaction of the minimum ownership requirement for
the one-year period as of the date that the proponent submitted the proposal as
required by rule 14a-8(b). Accordingly, we will not recommend enforcement action
to the Commission if NDCHealth omits the proposal from its proxy materials in
reliance on rules 14a-8(b) and 14a-8(f). Sincerely,
/s/ Jonathan A. Ingram
Deputy Chief Counsel
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