Yesterday we shared that the largest shareholder in Daktronics, Alta Fox Capital, was not happy with the Board and Management at Daktronics. Things heated up on Wednesday as Daktronics provided their thoughts and Alta Fox quickly countered.

First, comments from a Daktronics public letter:

BROOKINGS, S.D., Dec. 11, 2024 (GLOBE NEWSWIRE) — Daktronics, Inc. (“Daktronics” or the “Company”) (NASDAQ-DAKT), the leading U.S.-based designer and manufacturer of best-in-class dynamic video communication displays and control systems for customers worldwide, today issued the following statement regarding the recent press release and public comments from Alta Fox Capital Management, LLC (together with its affiliates, “Alta Fox”):

In May 2023, after a competitive process with several potential financing providers, we sold $25 million of convertible debt to Alta Fox. At that time, Alta Fox stated on social media that Daktronics’ stock “could triple” to approximately $16.23 per share.1

Since then, we have engaged extensively and in good faith with Alta Fox, including recently regarding Alta Fox’s desire to accelerate the Company’s repayment of this twenty-month-old convertible debt. In its most recent proposal, Alta Fox demanded that the Company retire the convertible debt at a price more than three times its face value and nearly 50% above its fair value. On behalf of our shareholders and following consultation with its investment bankers, the Board rejected Alta Fox’s proposal as too costly to common shareholders, and it stands by that decision.

Alta Fox then tried to intimidate the Board by threatening to initiate specious litigation on three separate matters, call a special meeting of shareholders, and nominate candidates to replace directors at the Company’s 2025 annual meeting of shareholders if the Board did not accept Alta Fox’s buyout terms on the convertible note.

Recognizing that those threats would not convince the Board to repurchase Alta Fox’s debt at an unreasonable price, Alta Fox has now issued a press release and presentation rife with innuendo and misleading statements. Alta Fox’s public communications yesterday are also concerning because they fail to disclose that Alta Fox has been seeking to secure an economic windfall for itself as a creditor of Daktronics at the expense of our common shareholders.

The Board recognizes and embraces its role as fiduciaries and will not be pressured into a transaction that is not in the best interests of the Company and its shareholders. The Company has made a counterproposal to Alta Fox that reflects the market value for Alta Fox’s convertible note and remains willing to assist Alta Fox in gaining the liquidity it desires at a price that is fair to both Alta Fox and our shareholders. At the same time, the Company will remain focused on its business transformation plan.

Notably, after significant transformation efforts and record financial performance in Fiscal Year 2024, Daktronics’ stock closed yesterday at a price of $19.24 per share, well above the price target Alta Fox itself set for the stock in May 2023.

Then four hours later, Alta Fox published their own thoughts: 

“Yesterday, we released a detailed presentation outlining the serious governance issues at Daktronics, including long-term underperformance during Chairman and CEO Reece Kurtenbach’s tenure, a misalignment of interests between the Board of Directors (the “Board”) and shareholders, and rampant nepotism in the executive ranks.

Instead of responding to the governance concerns raised by its largest shareholder, Daktronics has tried to paint Alta Fox as a bloodthirsty creditor, somehow misaligned with Daktronics’ equity investors. This is a weak argument that investors will not be duped into believing. Let us set the record straight:

1. Alta Fox has an equity position in Daktronics worth nearly $114 million once converted, or 11.7% of the Company’s outstanding shares.1 To insinuate that we are not aligned with shareholders is absurd, considering we are the Company’s largest shareholder and own ~5x the number of shares held by the entire Board.
   
   
2. The Company neglects to mention that Alta Fox has sought further governance enhancements as part of any agreement to retire our convertible promissory note. Over the years, Daktronics has failed to take our shareholder-friendly recommendations and highly qualified director candidates seriously. Unfortunately, this is unsurprising for a Company that abides by worst-in-class governance practices, including a staggered Board, poison pill and nepotism. Despite its claims of engaging in good faith, the Company never presented us with any proposed framework or offer. The Company merely suggested retiring the note early, without specifying a value, which Alta Fox noted could be a way to avoid diluting existing shareholders. We have consistently been a better barometer of Daktronics’ fair value than the current Board, and we would never accept a discount to what we believe the Company is worth.
   
   
3. As a shareholder, we have an unassailable right to put up directors for election at an annual meeting and to call a special meeting of shareholders. The Company’s claim in its December 11th press release that we have tried to “intimidate” the Board by stating our intention to nominate highly qualified, independent director candidates is not only delusional, but also speaks to the Board’s extreme level of entrenchment and the insular culture it has perpetuated.
   
   
4. Counter to what Daktronics claims, Alta Fox’s May 2023 post that stated our belief that shares could triple to ~$16.23 has proven prescient: Daktronics currently trades at ~$19.2 In the 19 months since that post, we have continued to study the business and speak to industry experts and ex-employees. We now believe the Company’s potential upside is far greater than we originally realized, and that Daktronics’ significant governance discount can be addressed, as we highlighted in our December 10th presentation. Perhaps this is news to the Board or its advisors, but facts and price targets can change over time.
   
   
5. We clearly see more potential value in Daktronics than the current Board or management do. As outlined in our December 10th presentation, we believe there is a path to achieving $40 per share and ~100% upside by FY28 through governance reforms, the addition of new directors who possess expertise in corporate governance and investor communication, and operational improvements.

It is disturbing to see Daktronics attempt to smear Alta Fox’s reputation with other shareholders after we stepped in to provide necessary rescue capital to the Company in its time of need and have dedicated more than two years to patiently advocating for improvements to the Company’s governance, financial management practices and performance.

As much as the Daktronics Board may try to evade it, accountability is coming. Alta Fox intends to utilize our full voting power as equity investors to benefit all stakeholders. We look forward to providing shareholders an opportunity to elect highly qualified directors so that Daktronics can realize its full potential.”

Insider’s Note: Tough to see this is going on while Daktronics has seen solid equity performance this year. DAK stock was down for the day just under 3% at the closing bell.

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