Echo Lake Capital Criticizes Performance of Safeguard Scientifics Chairman, Robert Rosenthal

  • Stock has underperformed NASDAQ by 260% since he joined the Board
  • Rosenthal has received $2 million in Board fees
  • Stock trading far below cost of investments
  • Corporate overhead was $7.1million in 2019
  • Questions compensation, composition and motivation of the Board

NEW YORK, NY / ACCESSWIRE / March 18, 2020 / Earlier today Ephraim Fields of Echo Lake Capital issued a letter to Mr. Robert Rosenthal, Chairman of the Board of Directors of Safeguard Scientifics, Inc. (“SFE” or the “Company”) (NYSE:SFE). In the letter Mr. Fields criticized the poor performance of SFE’s stock price during Mr. Rosenthal’s Board tenure. The letter also criticized Mr. Rosenthal’s compensation and many decisions that have been made during his tenure as Chairman.


Ephraim Fields

A full copy of the letter can be found below:

March 18, 2020

To: Mr. Robert Rosenthal, Chairman of the Board:

Since you joined the Board of Safeguard Scientifics, Inc. (“SFE” or the “Company”) over 12 years ago, the Company’s stock price has declined approximately 60%, while the NASDAQ has appreciated approximately 200%, implying an SFE underperformance of 260%.

Since the numbers are so staggering, allow us to repeat them. Since you joined SFE’s Board, SFE’s stock price has underperformed the NASDAQ by approximately 260%. We consider such severe and longstanding underperformance to be unacceptable and wonder why any board member with such a disappointing track record deserves to keep his/her job.

We find it further infuriating that while shareholders have suffered staggering losses during your Board tenure, you personally have fared much better and have received $2 million in Board compensation. We would consider the $2 million shareholders have paid you to be a terrible use of shareholders’ capital.

We believe SFE’s horrendous performance is largely attributable to decisions made under your leadership. These decisions include, but are not limited to, irresponsible spending on corporate overhead, poor capital allocation, poor hiring choices and a refusal to aggressively create shareholder value.

We have been communicating with you since July 2019 and have provided you several easily implementable suggestions on how the Board might create shareholder value. Seven months have passed since our first communication and SFE’s stock price continues to dramatically underperform. It is readily apparent to us that the Board continues to lack a sense of urgency to create shareholder value.

Since we began communicating the Board has implemented one of our suggestions. The Board delineated a specific plan to return capital to shareholders. While we were glad to see a plan finally announced, we think the plan is far too conservative and wonder why a leadership team with a demonstrated track record of destroying shareholder value insists on retaining $25 million of cash instead of returning part of it to shareholders. Furthermore, we believe if the Board really cared about fulfilling its fiduciary responsibilities it would have implemented a return of capital plan long ago and not waited for us to push for it.

We believe there is no better evidence of the Board’s lack of urgency than the Company’s excessive corporate overhead. In 2019, SFE’s corporate overhead was $7.1million which seems outrageously high considering SFE has only a few full time employees, SFE’s primary assets are minority investments in other companies and SFE has announced plans to liquidate.

Similarly, we can only wonder why SFE, a small company that is in the process of liquidating, insists on hiring a “big four” accounting firm (KPMG). In 2018, SFE paid almost $900k in fees to KPMG. We firmly believe SFE could easily find a less prominent auditor who could do the same job for much less money.

Finally, we wonder why shareholders are paying SFE’s Board Members so generously, especially considering the Company’s historically poor performance and the Board’s questionable skill set. In 2018, SFE paid over $800k in fees to Board Members, which we would consider yet another poor use of shareholders’ capital. It appears to us that you and certain other SFE’s Board Members may be more concerned about personally enriching yourselves than you are about acting in the best interests of SFE shareholders. So we wonder, why does SFE have so many Board Members, why are they compensated so generously and what skills do they have that qualify them for their position?

We think you and other Board members would be more eager to create shareholder value if you personally owned more SFE stock. However, our frequent suggestions that Board members buy stock have largely been ignored and there has been virtually no insider buying (except for Mr. Joe Manko of the Horton Fund, whom we consider to be a valuable Board Member who is dedicated to creating shareholder value).

SFE’s leadership has repeatedly said it believes SFE’s stock is undervalued. Recent investment presentations indicate SFE’s investments have a Cost of $230 million and a Value of over $300 million (based on the latest financing rounds for each of the portfolio companies). In addition, SFE has $25 million of cash and no debt. Yet SFE’s equity market cap is only $100 million. Who is to blame for this tremendous valuation discrepancy illustrated below?

Cost of Investments

$230 million


Value of Investments

$300 million

Equity Market Cap

$100 million


Equity Market Cap

$100 million






It appears the investment community has lost all confidence in your ability and/or desire to create shareholder value. Considering your performance over the past decade, can you really blame them?


Ephraim Fields

SOURCE: Echo Lake Capital

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