Safeguard Scientifics' rebel investors call for layoffs, selloffs and new bosses

Safeguard Scientifics, a Radnor-based investment firm that buys minority stakes in emerging health-care and software companies, should sell its positions and fire chief executive Stephen Zarrilli and his team, Philadelphia investors Darren C. Wallis and Joseph M. Manko told Robert J. Rosenthal, the Hudson, N.Y., biotech executive who chairs what the investors called Safeguard's "underperforming board," in a pointed letter Monday.

The share price at Safeguard, which owns minority stakes in Radnor-based digital-ad system MediaMath, Old City cloud-services developer WebLinc, and two dozen other firms, has fallen from around $22 in early 2014 to around $12 lately, despite the stock market's gains in those years, the investors noted. Wallis' firm, Maplewood Global Partners LP, and Manko's Horton Capital Partners LLC together own about 5.1 percent of Safeguard through a joint venture, Sierra Capital Investments LP.

In an unsigned reply statement the company posted Monday, Safeguard noted it had already announced plans on Jan. 17 to lay off roughly half its 30-member staff, cut costs by at least one-quarter, and consider selling its remaining businesses, giving the proceeds to shareholders.

A spokesman for the company was not immediately available for comment Tuesday afternoon.

But those promises lack a timetable, and rely on Zarrilli and his team, all of whom got the company into its current depressed position and have little incentive to fix things while they still have well-paid jobs at the company, according to Wallis and Manko. Zarrilli was paid $2.4 million in cash and stock last year. He is also the board chairman of LaSalle University, which is selling off part of its art collection to raise cash.

The investors say Safeguard, which is in selloff mode, no longer needs a large staff. They also called on the firm to replace its board members, who have shown, they wrote, "a compete dearth of management experience." The company has spent around $20 million a year on operations, mostly staff costs, in recent years.

Wallis and Manko say Safeguard trades at a discount of at least $100 million below the $350 million value reported in its own debt documents — its  assets may be worth much more, they added —  "because [Safeguard] is opaque, hard to value, and its leaders lack credibility."

The investors say they have proposed replacement directors. Reached by phone, Wallis declined to identify those directors, or comment on whether his group will formally challenge Rosenthal and his board for reelection this year.

Has Safeguard's time passed? The company, run for much of its history by Warren "Pete" Musser, a father figure to a generation of aspirational venture capitalists in the Philadelphia area, was briefly worth as much as $7 billion during the dot.com bubble of the late 1990s. But now it suffers from "bloated corporate overhead" and "misaligned incentives," and has "lagged behind" closed-end funds, asset managers, business-development corporations and other "nimble" investment groups that also invest in emerging companies, according to a confidential proposal the insurgent investors sent Safeguard in December.