Wall Street Journal, 06/24 , Susan Pulliam
Ralph Nader, the scourge of American business and onetime presidential candidate, has found his next corporate demon: Cisco Systems Inc.
Mr. Nader isn't calling for a router recall or claiming the company's networks are unsafe at any speed. Instead, he wants the tech company to pay a bigger dividend to boost its shares.
The consumer advocate's motives are far from altruistic. He is a longtime disgruntled Cisco investor who called the company's share performance "appalling." In a private letter to Cisco Chief Executive John Chambers sent June 13, Mr. Nader blasted the CEO for not doing enough to lift shares of the technology company and said "it is time for a long overdue Cisco shareholder revolt against a management that is oblivious to building or even maintaining shareholder value," according to the letter.
In 4 p.m. Nasdaq Stock Market composite trading Thursday, Cisco's shares rose 11 cents, or 0.7%, to $15.47. They are down nearly a third in the past year and are off 75% from their all-time, tech-bubble high. In comparison, the Nasdaq Composite index is down about 48% from its all-time high in March 2000.
Among the specific actions Mr. Nader suggested in the letter are the distribution of a one-time dividend of $1 a share and an increase in Cisco's annual dividend to 50 cents from 24 cents.
"If they can't give shareholders value, then they have to give cash," Mr. Nader said in an interview this week, adding that the company's stock has plummeted even though its profits generally were on the rise until recently.
Cisco, like many big tech companies, has been accumulating cash despite its weak growth. It holds $43 billion in cash, nearly half of its market value.
A Cisco spokeswoman said the company welcomes input from shareholders and added that the company is considering "capital allocation and returns to our shareholders," but declined to discuss specifically whether a dividend increase or one-time payout are on the table. She added that all but about $5 billion of the company's cash represents foreign earnings, which would be subject to taxes if the funds were brought back to the U.S.
The 77-year-old Mr. Nader, who rose to fame in the 1960s on his claims that American automobiles were unsafe, admitted the letter is a departure from his typical antibusiness stance. He said he has been an "adversary of corporate capitalism," but he is a believer in capitalism, so long as shareholders have a voice. He wrote the letter to Mr. Chambers, he said, because he objects to the "powerlessness of owner shareholders."
It has been a long and painful ride for Mr. Nader as a Cisco shareholder, he said. He first bought Cisco shares in 1995 at an adjusted price of $7 and currently owns 18,000 shares, he said. In 2000, his Cisco stake was valued at $1 million, about one-third of his $3 million portfolio. As Cisco's share price swooned in the years that followed, it has represented a smaller slice of his overall investment portfolio, which he said still is valued at about $3 million. At Thursday's closing price, his stake is valued at $278,460.
Even if Cisco adopted the changes he suggests, Mr. Nader would stand to gain only $27,000, including the first year's increase in the annual dividend on his 18,000-share stake in the company. "Just think of what people who have been loyal to them have endured," he said. "It's absurd." He said he personally didn't sell his Cisco stake because he thought the shares would rebound.
Cisco rose to dominance in the computer networking-gear business in the late 1990s but has struggled to regain its luster in recent years. The company made a string of acquisitions to keep up with the pace of change in the business but now suffers from a bloated sales force and stiff competition from Asia and smaller competitors, analysts and investors have said.
In May, Cisco reported an 18% drop in profit for its most recent quarter and the stock has slid from under $18 to its current level, despite assurances by Mr. Chambers in a call with investors that the company was overhauling its business model and cutting $1 billion in costs.
Mr. Nader launched his first major battle against a big company in 1965 when he published "Unsafe at Any Speed," which criticized the safety record of American cars. He and his followers have since gone after nuclear-power plants, nursing homes and industrial polluters.
Mr. Nader's letter to Mr. Chambers follows one he sent last October, in which he called for a dividend. Mr. Chambers wrote back and said he appreciated Mr. Nader's feedback. This year, Cisco instituted its 24-cent-a-share annual dividend. The spokeswoman said the dividend was under consideration before Mr. Nader's October letter.
Mr. Nader said he isn't going away any time soon. He said he talked to other investors and they are equally unhappy.
"They may be ready to organize, judging by the ones with whom I have spoken and by some comments made privately and publicly to the press," he said in the letter. He also said he plans to try to enlist investor Carl Icahn, who has in recent years taken up the mantle of activist investor through a hedge fund. Mr. Icahn didn't return calls for comment. "I think next year's shareholder meeting will be a hot time in Silicon Valley," Mr. Nader said.
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