USA Technologies’ Proxy Puts Three of Its Challenger’s Director Nominees on Its Own Slate

Annual stockholder meetings usually are staid affairs involving such exciting matters as appointing a company’s auditing firm, but the upcoming meeting for vending machine payments provider USA Technologies Inc. could be a real barn burner.

The months-long battle between Malvern, Pa.-based USAT’s management and board on the one side and the company’s largest shareholder, hedge fund Hudson Executive Capital LP, on the other has featured a steady stream of dueling press releases and filings with the Securities and Exchange Commission. 

The fight started in the wake of the company’s failure to file a number of required financial reports with the SEC because of serious accounting problems that USAT rectified late last year, and took off from there. Besides the accounting lapse, Hudson Executive Capital, which owns 16.2% of USAT’s common stock, says the firm needs new executive leadership and board members because of other mistakes, including a financing agreement the company entered into that Hudson says is overly expensive. 

Last October, long-time chief executive Stephen P. Herbert quit and was replaced on an interim basis by a company director, Donald W. Layden, Jr. USAT announced Monday that Layden had been named president and permanent CEO.

And on Thursday USAT filed its preliminary proxy statement for the April 30 shareholder meeting. The proxy addresses some anti-takeover legal issues, but the most interesting part is its slate of director nominees. If approved, nine would serve as independent directors, eight of whom will have been appointed since last April. Three of the nominees, Ellen Richey, a former senior executive at Visa Inc., Lisa P. Baird, and Anne M. Smalling, happen to be on Hudson Executive’s slate of eight director nominees. 

“We believe that the proxy contest commenced by HEC is unnecessary given the far-reaching change that has been made across the company and in the composition of the board,” Layden said in a Monday press release announcing the slate. “With that said, we recognize the impressive credentials of Anne, Lisa, and Ellen, and believe they would add real value to the company. We hope that by naming these three individuals as USAT board nominees, we can provide an avenue for HEC to take due credit for helping to refresh the board and return to constructive engagement with USAT.”

Hudson Executive Capital is not mollified. In a Tuesday press release, the firm said USAT did not ask the three women if they wanted to be on its slate. “Prior to USAT’s announcement yesterday, we had not been contacted by the company or its representatives,” says a statement jointly attributed to Richey, Baird, and Smalling. “We believe that the board’s decision to involve us in this way reflects its disregard for shareholders and an attempt to manipulate the process.”

In the same release, Hudson Executive Capital founder and managing partner Douglas Braunstein said “the decision by the USAT board to unilaterally name three of Hudson Executive’s director nominees to USAT’s proxy ballot is a desperate attempt to manipulate the board election in advance of a shareholder vote.”

In January, Hudson Executive said shareholders representing 61% of USAT’s voting power had already delivered proxy cards voting for all of its nominees. The Hudson Executive slate includes Douglas Bergeron, former CEO of point-of-sale terminal maker Verifone Systems Inc.

The Nasdaq Stock Market has delisted USAT’s stock, but the company has applied for relisting.