In a statement released December 20, health and security assistance provider MedAire announced that its two largest shareholders have reached a letter agreement “outlining mutual goals and strategies relating to the direction and control of MedAire” that would effectively place control of the company in the hands of its largest competitor, International SOS (ISOS).
One of the shareholders is Joan Sullivan Garrett, MedAire’s founder, chairman and CEO, who owns approximately 32.5 percent of the company’s outstanding voting stock. The other is Best Dynamic Services, a corporation organized under the laws of the British Virgin Islands. It holds 22.78 percent of MedAire’s outstanding stock and is a subsidiary of ISOS.
The letter agreement by the two shareholders follows an earlier attempt by ISOS to take control of Phoenix-based MedAire, also through a restructuring of the MedAire board of directors.
In late November, MedAire, had rejected that demand, made by a number of dissident shareholders, to replace its board of directors with six new individuals, four of whom were employees of competitor ISOS. At that time, the MedAire board consisted of four members–Garrett, company president and COO James Lara and independent members Roy Herberger and Terry Giles.
The demand came in a November 28 letter presented to MedAire by counsel. An accompanying consent resolution, said to have been signed by the holders of 52.67 percent of MedAire outstanding voting stock, was intended to remove the sitting directors of MedAire and replace them with a new, six-member board of its choice. The move would have effectively placed control of MedAire in the hands of ISOS.
Two days later, the proposed new board of directors adopted a resolution demanding that one of its members be recognized as a member of the MedAire board of directors and receive, among other things, approval authority over all MedAire press releases, as well as veto privileges over major communications with company clients, customers and vendors. On the same morning, he delivered a separate letter to MedAire saying that Garrett’s employment would not be renewed upon expiration of her current term on December 31.
In response to the demands, MedAire went to U.S. District Court on December 1 to request a temporary restraining order (TRO) blocking a new board from taking control. The request was granted the next day, and at a preliminary hearing on December 13, the court extended the TRO for up to 60 days.
Stockholders Look for Change
In an interview with AIN on December 7, Garrett said the move by the dissident MedAire stockholders and ISOS did not come as a complete surprise. “They [ISOS] have had a very tough time competing with us, despite a huge sales force advantage.”
ISOS had apparently taken advantage of the dissatisfaction of a number of MedAire stockholders, who had been unhappy with the company’s performance over the past few years. In defense, Garrett said that if performance has been less than desired, it is for good reasons.
MedAire expanded into the ISOS Asia-Pacific market in 2003 through the acquisition of Global Doctor, which had eight western-style medical clinics in China, Indonesia and Thailand. It was, said Garrett, a sound business decision. But unfortunately, it came only days before news of the SARS (severe acute respiratory syndrome) outbreak in Asia and a mounting death toll. “We bought a company that went from break-even to zero in a matter of months,” Garrett explained.
MedAire also took another hit in the form of the Sarbanes-Oxley Act of 2002, enacted to create corporate reform. “Our compliance is not a matter of choice,” said Garrett. “We have more than $10 million in assets and more than 500 shareholders, which requires us to become a reporting company to the U.S. Securities and Exchange Commission.” That in turn required compliance with Sarbanes-Oxley Act of 2002.
“To date, all of this [compliance] has cost us more than $1 million in fees, audits, IT
systems and other costs,” Garrett pointed out. “It’s typical in terms of costs.” MedAire expects to complete the last phase of compliance with Sarbanes-Oxley late next year.
If performance by MedAire over the past two years was disappointing to some of its stockholders, its report for the third quarter of last year suggests an improving financial position. It showed a 10-percent increase in total revenue, from $6.5 million in the third quarter 2004 to $7.1 million in the same period of 2005. MedAire was expecting annual revenues last year to top $29 million, up from $25 million in 2004.
Changes at MedAire
The letter agreement by Garrett and Best Dynamic Services, said an insider source, does not represent a merger of MedAire and ISOS or an acquisition of MedAire by ISOS, but it is “a de facto takeover.”
Leverage to force the issue came in the form of a dissident consortium of smaller MedAire stockholders.
The letter agreement stipulates that Garrett and Best Dynamic Services will use their best efforts to:
• effect the appointment of James Williams, a senior executive of ISOS, who previously ran ISOS operations, to the MedAire board of directors by Dec. 21, 2005.
• halt all lawsuits pending or threatened between any of the parties and their affiliates.
• cause MedAire to prepare and circulate consent resolutions for execution by shareholders that will elect a new slate of nine directors, six of whom are to be designees of Best Dynamics and three of Garrett.
• cause the company to enter into a new five-year agreement with Garrett, who will continue as chairman and be responsible for the representation and promotion of MedAire’s brand and assisting in formulating the strategic vision of MedAire, but without day-to-day management responsibility.
• enter into a shareholder agreement that requires the two shareholders (Best
Dynamic Services and Garrett) to not vote their shares in a manner inconsistent with the letter agreement, and which places certain limitations on the transferability of Garrett’s shares for a period of five years.
A failure to put into effect the above actions by March 1 will terminate the letter agreement.
In a statement that accompanied announcement of the letter agreement, Garrett said other details remain to be worked out, but that “dialog in reaching the consensus has been very positive.
“With shareholder support going forward, MedAire will be in an excellent position to expand our market presence while continuing to deliver quality services to our core aviation and maritime markets, creating value for all shareholders,” she concluded.
MedAire was established in 1985 and provides real-time emer- gency medical and security assistance. Its clients include airlines, corporate flight departments, maritime operators and government agencies. It also offers related training, Web-based information and specialized resources such as medical and security kits.
The company is traded publicly on the Australian Stock Exchange as a result of its acquisition of Perth-based Global Doctor. In the past, Garrett has suggested that MedAire might go public in the U.S., pending full compliance with Sarbanes-Oxley.
ISOS was formed in the early 1980s by French doctor Pascal Rey-Herme as AEA International and is now a wholly owned travel assistance company with headquarters in Singapore and London. It is global in scope with 4,000 employees in 60 countries, operating 24 alarm centers and 24 SOS clinics. ISOS revenues for last year were expected to be in the $250 million range.