EUROPE -Hermes Focus Asset Management is attempting to replace the executive board of a Dutch technology chip manufacturer with a completely new team, for failing to achieve promised profitability.

A proposal has been submitted to Dutch semiconductor producer ASM International (ASMI) ahead of its annual general meeting on May 21 suggesting five directors should be dismissed and replaced with a new as the company in unlikely to meet profitability targets set four years ago.

Wouter Rosingh, managing director of Hermes Focus Asset Management, told IPE the asset management firm, which manages money on behalf of European pension funds, the firm has been posting losses for six years and has been in dialogue with ASMI since 2006 but the company now looks unable to meet its own target of achieving pier-level profitability by 2009, as the company has just issued a fresh profit warning after failing to reach front-end operations profitability last year.

"They promised they would focus on front-end profitability and reach pier-level profitability by 2009. We have been monitoring progress and it became very clear on the 2007 results they were nowhere near. The results show there has been absolutely no progress made. And they have already announced the results in 2008 are not going to show profit. How are you ever going to get to pier level profitability on that basis?" said Rosingh.

"They keep promising things will get better, but the problem is if you promised something on a four-year timeline and you are half-way through but there is no indication it will go anywhere, and conditions show you cannot make money, it will be challenged.

He continued: "[The management] has behaved as though it does not have a responsibility to make a return for the investors. And there is a team in the market ready to step in and take over."

Hermes Focus Asset Management currently has a 13% shareholding in ASMI but is so concerned about the financial status of the company it has been talking to other shareholders, who say they are also "very, very concerned", according to Rosingh.

Responding to the AGM agenda proposals, , Paul van den Hoek, chairman of the Supervisory Board, and Chuck del Prado, chief executive Officer of ASM International, jointly said in a statement issued on the ASMI website:

"We regret that Hermes has tabled these proposals which we do not believe are in the best interests of the company, its shareholders and other stakeholders. The Company has made significant progress over the past two years towards improving its front-end profitability. We have met the commitments we made in 2006 for that year and for 2007, and the underlying operating profitability during this period has improved by around €50m.

"The Company remains committed to achieving peer group operating margin performance for the Front-end in 2009, and will shortly be detailing the further steps that will be taken to achieve this goal.
"The Boards of ASMI have worked assiduously to seek a compromise with Hermes and fellow shareholder Fursa over a period of more than two years, despite some deep-seated differences in perspective. In particular, we reject the characterisation of the intense investment required to reposition our front-end product range as being value destructive. The team with industry background has itself emphasized the solid growth potential that most of our front-end product lines now have."
Further information provided within the statements indicates ASMI is reviewing its existing proposition and looking at what it describes as "more aggressive return of capital strategies to help address the undervaluation of the ASM International share price" and will be making its cases "forcefully" to shareholders ahead of the AGM.

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