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Ramius Is Flexing Its Muscles

Ramius practices a quiet but effective brand of activism. Ramius’s most recent target: Cypress Bioscience, SeaChange International, Aviat Networks and Phoenix Technologies.

I don’t know about you, but I love following hostile takeover battles, corporate raiders and belligerent activist investors.

It’s been a passion of mine since the 1980s, when Carl Icahn (who at 74 has not lost his love of a good battle), T. Boone Pickens and Saul Steinberg instilled fear in the boardrooms of companies whose stocks seemingly lagged others.

It must be the sports fan in me. Every day is a new battle.

It’s also probably why I always got a kick out of the scathing attacks on management from the likes of Third Point’s Daniel Loeb, who never misses an opportunity to tell CEOs who run their companies like private piggybanks that they are jerks.

One activist group that has mostly stayed out of the screaming headlines is Ramius, which was founded by old-time Wall Street luminaries Peter Cohen, Jeffrey Solomon, Morgan Stark and Thomas Strauss.

Today their firm — which last November merged with Cowen & Co., retaining the Cowen name and its public listing — manages $1.6 billion just in single-manager hedge funds (it manages between $7 billion and $8 billion in total alternative investments, including real estate and funds of funds).

Its activist activities are conducted through its Value and Opportunity Advisors, which manages more than $250 million.

Ramius rarely goes after the big names we’ve all heard of. Rather, it is like a schoolyard bully, going after much smaller fry and hoping to make them quake in their boots. The firm deems these smaller companies better targets because typically they are simple to understand, with just two or three business lines; they are under-covered by Wall Street; and they tend to be focused on growth and generally have good core businesses.

In the past few weeks, Ramius has been especially busy flexing its muscles around four companies.

But whereas Loeb likes to fire off pointed letters, Ramius is a little more polite. Its style works, though: Ramius is very successful in threatening to launch proxy fights and then settling when the company agrees to place one or more Ramius choices on the board of directors (which Loeb and other activists frequently do as well).

Ramius’s most recent target: Cypress Bioscience, has a market cap of $148 million. Last week, Ramius increased its offer to acquire the drug company to $4.25 per share in cash, up from the $4 it offered back in July, which was rejected. Then on Monday, Ramius, which owns 9.9 percent of Cypress’ shares, fired off a letter to the company’s independent board members imploring them to allow the shareholders to vote on its buyout offer.

“Let us remind you of the massive destruction of shareholder value that has occurred over an extended period of time on your watch,” wrote Ramius partner Jeffrey Smith. “In the one-, three-, and five-year periods prior to our initial acquisition proposal, the value of Cypress shares has been decimated.” Ah, Loeb would be proud.

Also last week, Ramius resumed its battle with SeaChange International, a provider of software and hardware for video-on-demand television. In a letter to the board of directors dated September 14, Ramius said it was “deeply disappointed and concerned” about the company’s fiscal second-quarter 2011 earnings release and the recent conference call. “Evidently, so are other shareholders, given the steep 15.6 percent decline in SeaChange’s stock price on the following day,” it added. A little milder than the other letter, but not bad.

Ramius, which owns 8.9 percent of SeaChange — whose market cap is a mere $230 million — goes on to detail three major concerns: its software business is underperforming and missing its goals, the company is keeping its servers and storage business despite receiving several acquisition offers, and “management credibility appears to be extremely low.” Atta boy.

Now keep in mind that in June, the two parties had signed a temporary truce when SeaChange agreed to increase the size of its board from six to eight members and appoint two Ramius choices for election at the 2010 annual meeting. As part of the agreement, Ramius withdrew its nomination of its own candidates.

Also last week, Ramius reached a settlement with Aviat Networks, a maker of wireless products with a market cap of $238 million. Under the deal, Aviat will include one board candidate recommended by Ramius. Ramius agrees not to engage in a proxy fight for a year, not to own more than 14.99 percent of the outstanding shares and not to join in a group with other investors.

Ramius, which owns 7.6 percent of the company’s outstanding shares, had first reported an activist position in July.

And earlier this month, Ramius reported it had lifted its stake in Phoenix Technologies to 14.5 percent. The company, which makes core system software for personal computers, has a market cap of just $140 million.

This is a longer-term battle. Four years ago, Ramius offered to buy the company for as much as $5.50 per share. Last year, it planned a proxy fight and threatened to nominate four of its own directors. However, last November the two parties reached a settlement whereby the company agreed to double the size of its board to ten members and to appoint five directors chosen by Ramius. In addition, Smith, who was one of those directors, was immediately named chairman.

Under that deal, Phoenix agreed to reduce the size of its board to nine before the 2011 annual meeting, probably to take place in January, and to nominate all five Ramius directors.

Say this about Ramius: They are patient, and they eventually get their way.

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