Breach Inlet Capital’s Open Letter: Why Voting Against Daktronics, Inc.’s Reincorporation is the Right Choice
Charleston, SC, March 1, 2023 – Breach Inlet Capital Management, an investment firm committed to uncovering value in underfollowed and misunderstood small cap equities, has issued an open letter to the shareholders of Daktronics, Inc. (DAKT) expressing our intention to vote against the proposed reincorporation of the Company from South Dakota to Delaware. Below, we outline our rationale for this decision.
The Proposed Reincorporation: A Costly and Unnecessary Move
The primary motivation for DAKT’s reincorporation to Delaware is to gain access to Delaware’s well-known, shareholder-friendly legal system. However, we believe that the costs and potential risks associated with this move far outweigh the benefits.
- Cost: The reincorporation process itself is estimated to cost DAKT between $1.5 million and $2 million, a significant expense that could be put to better use for shareholders.
- Lack of Transparency: Delaware corporations are not required to disclose executive compensation details or shareholder proposals as thoroughly as South Dakota corporations, making it more difficult for shareholders to stay informed.
- Potential for Unintended Consequences: Delaware’s business-friendly laws can sometimes lead to unintended consequences, such as increased litigation and shareholder activism, which can distract management from focusing on core business operations.
The Impact on Shareholders
Breach Inlet Capital believes that shareholders would be better served by DAKT focusing on its core business operations rather than pursuing a costly and potentially disruptive reincorporation. By voting against this proposal, we aim to send a clear message to management that shareholders value a focus on creating long-term value for all stakeholders.
The Impact on the World
While the reincorporation of DAKT may not have a significant direct impact on the world at large, it serves as a reminder of the importance of transparency and shareholder value creation in corporate governance. By advocating for shareholder interests and opposing unnecessary and costly reincorporations, investors like Breach Inlet Capital can help set a positive example for other companies considering similar moves.
Moreover, the outcome of this vote could potentially influence other underperforming small cap companies to refocus their efforts on improving their operations instead of pursuing costly reincorporations. This, in turn, could lead to increased value creation for shareholders and a more efficient allocation of resources within the small cap equity market.
Conclusion
Breach Inlet Capital strongly urges DAKT shareholders to join us in voting against the proposed reincorporation from South Dakota to Delaware. By doing so, we can send a clear message to management that we value transparency, shareholder interests, and a focus on creating long-term value. Together, we can help set a positive example for other small cap companies and contribute to a more efficient and effective small cap equity market.
We remain committed to working with DAKT management to explore ways to maximize value for all stakeholders and believe that this reincorporation proposal is not in the best interests of the Company or its shareholders. We look forward to continuing our engagement with Daktronics and working together towards a successful future.
