Investor Says Buyout Offer Didn’t Get to Board

In another episode in an ongoing dispute, a large investor in Tustin-based Quality Systems Inc. said Monday that the company’s president and chief executive did not inform board members of a $47-million bid for the firm made in December.

John Kutasi, president of Woodland Hills-based Metropolitan Adjustment Bureau Inc., offered $7.50 a share for the company, more than double the stock’s price at the time. But Quality Systems Chief Executive Sheldon Razin rejected the bid without first discussing it with the board, according to Lawndale Capital Management, which owns nearly 10% of the company.

Razin said he didn’t believe he had received “a bona fide offer from a bona fide company. I called and investigated, and the only thing I found out was that his company never did more than $1 million in business and he had no means to tell me where it was going to get $47 million.”

Quality Systems develops information technology for health care organizations.

Kutasi, whose firm collects unpaid and delinquent accounts, said the letter was meant “as a friendly initiation of discussions” but his offer was summarily rejected.

Kutasi said he received support for his bid from other investors but declined to say whom. He confirmed that his company has annual sales of just more than $1 million.

Razin said he turned down the offer on the same day that he received it, and he told board members about it afterward. At least one company director, however, said the board should have been consulted prior to the rejection.

“I believe that there should have been a board discussion,” said the director, Don Cook. “Looking at it now, I probably would have thought it to be an inappropriate offer, but my issue is that we should have talked about it.”

Cook said he did not talk to Razin about the offer until last Thursday, although Razin said he had tried to inform all the board members after he rejected the offer.

Lawndale Capital for months has been pressing for changes in the composition of the company’s board of directors and management. Andrew Shapiro, president of the San Francisco-based investment firm, said news of the offer, and Razin’s unilateral rejection of it, reinforces the need for a more independent board.

“If there were ever a circumstance when the independence of directors from management is paramount, it is in the evaluation of an acquisition proposal,” Shapiro said.

Shapiro and other investors point out that the company’s stock has languished for the last several years, compared with that of its competitors. They also note that the stock is far below its $8.50 price when the company went public in 1982, even as the stock market has soared.

Another analyst agreed that the company needs a change.

“Absolutely, this company is undervalued,” said Bradley Witt, an analyst with Morgan Keegan & Co. “I think they need new leadership to untap the value of the company.”

But Razin said the stock performance measurements being used by his critics have been arbitrary, noting that, since the beginning of the year, the firm’s stock has held steady even as shares of competing companies have fallen.

Quality Systems stock closed Monday at $4.19, up 6 cents a share.