Ambassadors Group investors call for major changes, new directors

Two large investor groups have filed notices with Spokane-based Ambassadors Group saying they want the company to change directors and refocus operations to stem five years of steady stock decline. The two investors are Lane Five Capital Management, based in Towson, Md., and Bandera Partners, based in New York City. Lane Five, which owns about 7 percent of the company’s public shares, sent a preliminary proxy statement saying it will submit three new directors to Ambassador’s board to replace three who are leaving. Ambassadors, which promotes cultural-immersion travel trips for students, has a nine-person board. Only three positions are due for replacement at the next annual meeting. Lane Five Capital’s CEO Lisa O’Dell Rapuano said the effort reflects her belief that Ambassadors’ management and board are not aggressively stopping the company’s slide. “I’m doing this because I want the company to get better,” Rapuano said. “The current path being taken is not sufficient to fix things.” Rapuano said she believes pricing may be too high for some of the travel programs, and marketing initiatives have to be smarter, she added. “I don’t think the (Ambassadors) brand is broken. But I also don’t see the management experimenting enough, or creating new products to change,” she said. On Monday, Bandera Partners — the largest stakeholder of Ambassadors stock, with 13 percent — also filed a preliminary proxy statement saying the company’s board needs to work with Lane Five and avoid a lengthy, costly proxy fight. Proxy statements are letters inviting shareholders to vote in favor of a nominee or a company resolution. The statement said that a costly proxy fight — involving lawyers, numerous mailings to shareholders and hiring contractors to handle public relations — “is not in the best interests of Ambassadors Group and its shareholders,” said the Bandera statement, adding the fund intends to vote in support of Lane Five’s three nominees if a solution isn’t found. Rapuano said her firm has just over $100 million in investments across roughly two dozen companies. She invested in Ambassadors in January 2008 after the stock fell from around $40 down to $17. She said she was convinced Ambassadors the company would reverse course and start producing solid gains. Instead, the stock has continued dropping; its price Monday was $5.35. “We’re long-term investors. We put up with declining prices all the time,” Rapuano said. But that will continue only if the investor is convinced the board is pursuing a sound strategy and management is executing that plan, she said. “But when you face long periods of decline, you do have to be concerned,” she said. In its Feb. 9 fourth-quarter earnings report, Ambassadors in February said it lost $7.8 million in the last quarter of 2011, compared to a loss of $6.7 million in the previous fourth quarter. Net income for 2011 was $3 million, down from $8.1 million the year before. In 2007 Ambassadors reported net income of $31 million for 2007, the highest over the past decade. In a conference call this February, Ambassadors officers said they’re focusing on a number of initiatives, including cutting costs and more effective marketing. Also Monday, Ambassadors filed a document with the Securities and Exchange Commission that included a letter the company sent to its workers and a general “frequently asked questions” sheet addressing the possible proxy fight. The letter noted that company managers have met and discussed Lane Five’s concerns. But “these discussions have not led to a mutually agreeable resolution thus far,” it said. It also said, “Our board and management team are committed to acting in the best interests of share owners and are focused on delivering value.” A company spokesman said Ambassadors declined to comment beyond the employee letter and the FAQ. Ambassadors likely will name three nominees for the board seats in its annual proxy report to be filed ahead of its annual meeting. A date has not been set for that meeting; last year it was in May. Following a number of communications going back several months, Ambassadors CEO Jeff Thomas told Rapuano the company would offer Lane Five two board seats, she said. Rapuano however contends just changing two board seats is inadequate. “You can’t just do same thing and hope it gets better,” she said.