Investors Urge Review of Knowles' Precision Device Unit

(Bloomberg) -- A pair of investors in Knowles Corp. are urging the company to explore ways to unlock value, including launching a strategic review of its precision device segment and board changes.

Caligan Partners and Falcon Edge Capital, which disclosed a combined 6.7 percent stake in the company this month, have nominated two former associates of Carl Icahn, Samuel Merksamer and Jonathan Christodoro, to Knowles’s board.

Knowles could unlock the equivalent of about $28 a share if it were to follow their suggestions, the investors said in a letter to the company’s board Friday.

Shares in Knowles rose as much as 3.9 percent in New York on the news and were up 2.3 percent as of 11:54 a.m. to $17.29.

A representative for Knowles wasn’t immediately available for comment.

The investors have made little progress over the past six weeks in discussions with Knowles’s chief executive officer and chairman, Caligan and Falcon Edge said.

"It is obvious to us that the board would benefit from a fresh perspective," the pair said in a letter obtained by Bloomberg.

They have urged the company to be more transparent about the estimated $125 million in losses in its intelligent audio segment in 2017 and 2018, a segment that was meant to add to earnings by the end of 2016. In addition to launching a strategic review of the precision device segment -- which they argue has "no connection’ with the broader business -- the investors want the company to add experienced directors, they said.

The investors said the company has resisted those suggestions. The pair have argued the current leadership at the company is responsible for a series of missteps and missed financial guidance that have led to its underperformance relative to peers.

"After multiple conversations and in-person meetings with our representatives, Knowles’ board has seemingly concluded that despite five years of negative total shareholder returns, no change is needed at Knowles," the investors said.

The investors said they had nearly reached a settlement to appoint one of their nominees to the board before the company introduced a series of changes to the agreement. They have also asked Knowles to adopt a universal proxy card to allow investors to vote for whomever they want elected to the board from either the company’s or the dissident’s slate.

Shares of Itasca, Illinois-based Knowles closed up 0.8 percent Thursday to $16.91, valuing the company at about $1.5 billion.

Founded in 1946, Knowles makes acoustic components for products including hearing aids and mobile phone microphones, according to its website.

Merksamer was managing director at Icahn Capital until late 2016 before co-founding Caligan Partners with David Johnson last year.

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Matthew Monks, Michael Hytha

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