Friday, March 10, 2006

Vishay Intertechnology

“Share and share alike” is NOT the byline of Vishay Intertechnology VSH). Though analysts seem to believe that the macro environment is decent for the business, it is clear to me that management does not want you as their “partner.”

As earnings grow, because of the dilutive effect of two large convertible issues, the dilution of earnings per share grows faster. This is a company that has been a net issuer of stock since 2000, and has yet to pay a dividend. So much for sharing the wealth.

The company has just announced that it is introducing a Class C common, which as the proxy indicates will further entrench voting control in the hands of essentially one man, the co-founder Dr. Felix Zandman.

As the proxy states: “The creation of Class C common stock would permit us to raise additional capital or engage in a range of investment and strategic opportunities without materially diminishing the voting power of our existing stockholders. In particular, the effective voting control of our Class B common stock, substantially all of which is beneficially owned by our co−founder and Chairman Dr. Felix Zandman, would be preserved. Dr. Zandman has voting power over substantially all of the Class B common stock either through direct ownership, through a family trust or through a voting trust agreement.”

As the proxy also clearly indicates, you as a minority shareholder will suffer some disadvantages: “For example, the proposed amendment might make us a less attractive target for a takeover bid than it would otherwise have been, or it might at such time render more difficult or discourage a merger proposal, an unfriendly tender offer, a proxy consent or the removal of incumbent directors or management, even if such actions were favored by our Class A stockholders. The proposal may also deprive our Class A stockholders of an opportunity to sell their shares at a premium over prevailing market prices, since takeover bids frequently involve purchases of stock directly from stockholders at such a premium price. Also, issuance in the future of shares of Class C common stock rather than additional shares of Class A common stock will perpetuate the effective voting control of our Company by the holders of the Class B common stock, making it difficult for our public shareholders to elect directors or take other action that is not supported by Dr. Zandman and other members of management.”

Though this year’s preliminary proxy does not yet indicate executive compensation, I looked back to the year 2000 at prior proxy statements. Dr. Zandman has received salary and bonuses totaling $22,750,000 plus. Shareholders have lost 33.77% on their investment over this period of time. I have not included any stock option or restricted stock awards in totalling compensation.

Judging from management’s actions in insider selling, they do not appear to be terribly interested in holding the stock with total sales of $2.4 million and total purchases of squat.

Returns on invested capital have improved to a resounding 3.10% for 2005, which follows similar lackluster returns of 2.7%, 1.3%. 1.4%, 2.6%, and for the year 2000, 26%.

Though the cyclical environment may look terrific, in my opinion, this company does not appear to want the rest of us as partners. Judging from the returns, I am certainly not in a hurry to be part of this.

I, my family, and clients do not have a position in Vishay Intertechnology.


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