Is Mace Security International Inc. (Nasdaq: MACE) thinking of leaving the security business? That's the question that emerged today as Chief Executive Louis D. Paolino Jr. faced a barrage of skeptical and at times hostile questions during a two-hour conference call with shareholders about his plans to turn around the company in Mt. Laurel.
Mace has been selling its profitable car washes and was expanding into the security business, which is losing money. (See previous PhillyInc posts here). Now, Paolino says he is having trouble finding good acquisition targets. "I've looked at dozens of security companies and have had a hard time finding any that made any sense. We are committed not to buy security companies for kicks and giggles." Earlier in the day, Mace announced it planned to spend $10.5 million to acquire Linkstar Interactive, described in a press release as "an online product marketing company, devoted to bringing proprietary unique consumer goods and services to a wide audience in an e-commerce environment."
That didn't go over well with Andrew Shapiro of Lawndale Capital, Mace's largest shareholder and a vocal critic of the company. Shapiro and other shareholders questioned the price, fumed that the deal closes in just a week and wondered what it has to do with Mace's other businesses. Shapiro, for one, wondered why Mace had to buy Linkstar instead of just hiring the company to help improve its Web operations.
Paolino defended the acquisition, arguing that Linkstar would give Mace a "much bigger growth opportunity that could be bigger than anything we are doing here." Paolino also said that by buying the company Mace wouldn't run the risk of wasting money on shoddy contract work.
Shapiro and other shareholders didn't buy it. In an interview with PhillyInc after the call, Shapiro said he was particularly concerned that Mace was using its stock for the acquisition of Linkstar instead of buying back shares.
"I do not think it was a good use of the company's resources to issue a single share of stock when the stock is trading far below the company's book value. ... I do not know enough financial information to determine if they got a good value. (But) they acknowledged on the call that Linkstar has very little profits."
Paolino also parried with Shapiro about the company's five-member board of directors, which has come under attack from corporate governance experts for giving Paolino a pay package that compensates him for buying and selling businesses. Shapiro wants the board to add three members (listed here) and remove one -- Paolino's brother Matthew, who also serves as a vice president. Paolino said adding more people would add additional costs. Shapiro retorted that the new members could earn their fees back by identifying new cost savings. Paolino said the board was independent and indeed was "committed to looking" at its membership, then seemed to brush off Shapiro's board-reshuffling proposal by saying he could present his candidates at the annual meeting in December. Paolino declined to answer questions about his pay during the conference call.
Said Shapiro later: "Were disappointed that the message (is) the company will not be taking any steps to improve its board of directors anytime soon."
In other matters, Paolino said he expected the company to complete the sale of its national car wash chain in about six months. Mace also has filed a lawsuit against a former division controller for alleged embezzlement. No criminal charges have been filed, though the company says it has complained to authorities. Paolino said: "As we continued to stare at the numbers, we thought that something wasn't right. This guy was an experienced guy. We we're paying him $90,000."
