| Shareholder Activism

Equitable Financial Corp: Is slapping shareholders with “voluntarily delisting” a new way to frustrate an activist shareholder?

When faced with an activist shareholder, companies typically adopt a shareholders rights plan or amend the by-law to make it hard for an activist. Some companies go to a greater extent to hurt not only the activist but all the other shareholders. Equitable Financial seems to be doing the latter.

On July 10, 2018, Equitable Financial Corp. (EQFN) announced that it had notified The Nasdaq of its intend to voluntarily delist its common stock from The Nasdaq Stock Market.

Even though the company argued that delisting would “eliminate the administrative and annual fees associated with being listed on Nasdaq,” I am not convinced by the argument given the ‘timing’ of the announcement. 

Roughly 4.5 months previously, Alan S. Parsow of Elkhorn Partners, Limited Partnership (9.3%), disclosed his interest in nominating his colleague to the Board. Mr. Parsow is not new to activism. He has primarily agitated for Board seats in roughly six companies including Equitable Financial Corp. since 1998. Given his background, an abrupt announcement of delisting questions the true motive behind the Board’s decision to delist the company’s shares.

After the delisting news surfaced, Mr. Parsow of Elkhorn Partners released a letter expressing his displeasure and wrote that delisting entrenches the Board to the detriment of other stockholders.

I couldn’t agree more.

Top executives of Equitable Financial are richly compensated – Country Club dues, phone reimbursements, vehicle allowances, cash bonuses and hike in base salary for all three top executives in the last year. Also, the CEO and Chief Lending Officer gets additional compensation for serving as a Director. For a nano-cap company, this is an unusual compensation structure.  Moreover, the company has not undertaken any meaningful cost-cutting initiatives. All these give an impression that the company is yet to exhaust all other options to cut cost before voluntarily delisting its shares.

At this time, we can only wait and see the next move of Mr. Parsow.  Since the company has a staggered Board, the Board fight could take years to win a majority control, in case that is required to push for the right changes.                                                                                                      

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