Tollgrade's largest shareholder threatens proxy fight

Tollgrade Communications Inc.'s largest stockholder has threatened to wage a proxy contest for control of Tollgrade's board if there are not "substantial changes" to correct the company's "historical underperformance."

Ramius LLC., a New York-based hedge fund that says it owns about 15 percent of the company, said in a letter dated Monday to Tollgrade CEO Joseph A. Ferrara that the company needs a board with "relevant experience in the telecom equipment and services industries" to correct Tollgrade's long-term underperformance.

Stock of O'Hara-based Tollgrade in the past five years has underperformed, down 53 percent against the Nasdaq composite index, revenue has dropped by $8 million, and gross profit has fallen by $7 million, Ramius said.

Tollgrade stock traded this afternoon at $5.27, up 23 cents or 4.5 percent. It has traded as high as $7.14 in the past year.

Ramius said it wants to nominate four candidates to the seven-member board. Those candidates offer 35 years experience in the industry, compared to the current board in which Ferrara is the only member with telecom industry background.

Tollgrade spokesman Robert Butter said the company has not yet filed a proxy statement setting the date for the 2009 annual shareholders meeting, because of the ongoing discussions with Ramius. That filing could come this week, he said.

Tollgrade responded today by saying in a Securities and Exchange Commission filing that Tollgrade would be hurt if Ramius carries out its threat to wage a "costly and distracting proxy" battle to take control of Tollgrade's board.

Tollgrade Communications, which sells network test equipment and software, said it has discussed with Ramius' representatives in recent months ideas they have to increase shareholder value. Tollgrade said it can't understand how Ramius believes that waging a distracting proxy contest would hurt initiatives it is working on to increase shareholder value.

Tollgrade said it has determined that it would be best to refocus the company's core business by emphasizing its service offerings to the telecom market. Tollgrade said its software testing solutions represents the best chance to expand its market and increase revenue.

Tollgrade said an investment banking firm looked at a several strategic alternatives in recent months, including selling the company. The review included an assessment of each business unit, acquisition and merger alternatives, and stock buy-back and dividend options.

The company also initiated a $15 million stock buyback program, Tollgrade said.