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Relentless Burton Targets Cenveo

May 2005
GREENWICH, CT—Robert Burton has never shied away from a business challenge, or an opportunity. In his bid to take over Cenveo, he will get both.

Burton informed Printing Impressions magazine on April 7 that he had filed a Schedule 13D with the Securities and Exchange Commission (SEC) to report that his Burton Capital Management (BCM) owned approximately 10 percent (9.6) of Cenveo's outstanding shares. Less than a week later, BCM filed an amended 13D to reflect it had increased ownership to 10.6 percent.

Burton also seeks to become the next chairman and CEO of Cenveo, with BCM having the right to choose two board members. Should the company not negotiate terms with Burton, he could wage a proxy battle and attempt a hostile takeover.

Reacting swiftly, Cenveo retained two law firms and investment banker Rothschild Inc., to advise the board and evaluate strategic alternatives. The company also adopted a shareholder rights plan and declared a dividend distribution of one preferred share purchase right plan on each outstanding share of Cenveo common stock. With the poison pill in place, Cenveo seeks to prevent any takeover while kicking around its alternatives—options the company did not mention.

The move by BCM comes roughly two months after Burton, whose printing leadership past includes successful stints with World Color and Moore Corp., yielded to Eastman Kodak in his bid to take control of Creo.

In an April 7 letter addressed to Cenveo's board, Burton expressed his displeasure in the company's inability to effectively cut costs and create shareholder value. He recounted his earlier proposals to acquire Cenveo, including a $7 per share offer last July.

BCM's proposal valued the company at 81⁄2 times Cenveo's trailing 12-month EBITDA, representing a premium of approximately 155 percent to the average closing price for July 2004. Burton wrote that he was told the company was "only willing to entertain discussions with us if we would indicate a valuation rate in the 'high-single digits.'" Burton felt that neither historical or projected earnings, business properties and portfolio, nor precedented transaction comparables justified the price tag, and talks halted.

Burton wrote that after learning of the resignation of Cenveo Chairman, President and CEO Paul Reilly, he contacted the firm and offered to invest up to $100 million in newly issued securities of Cenveo that would be priced based on the then-current market price of approximately $3 per common share. Burton also stated his desire to take the executive direction of the company, and expressed his dismay over Cenveo's "unresponsiveness" to BCM's inquiries.

A letter written on April 8 by Cenveo Chairman Susan O. Rheney on behalf of the directors denied that Burton's overtures had been disregarded and indicated that the best route to maximizing shareholder value was to stick with the company's game plan.

"While we disagree with virtually all of the assertions made in your letter, we agree that the stock of Cenveo has been significantly undervalued by the market at large," Rheney wrote. "The board of Cenveo has not been 'dismissive' of any proposal made to it. ...Based on our analysis, presently we believe that maximization of long-term shareholder value will be best achieved by the successful execution of the company's strategic plan."

Rheney also wrote that the company will continue to seek a new CEO, which will be separate from the role of board chairman, "as a matter of good corporate governance."

Despite the cool reception from Cenveo, Burton is pressing the company to come to the negotiating table and could request a special meeting of shareholders.

"We believe that if the company's cost structure were brought in line with those of its publicly traded peers, substantial value will be created for its shareholders with the stock potentially worth at least $10 to $12 a share," Burton wrote.

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