Alan S. Parsow, the man from Elkhorn, Neb., has become a familiar figure in Washington investment circles. A 40-year-old money manager who searches for undervalued stocks, Parsow first came to local attention several years ago when he bought a block of shares in ERC International of Fairfax.
Parsow wanted a seat on the ERC board, an idea that got a chilly reception from the late Jack Aalseth, then chairman of ERC. Parsow never did get his board seat, but his relationship with Aalseth improved. Parsow remained an ERC investor until the company was sold last year to the Ogden Corp.
Parsow made his next big Washington move about a year ago when he announced he had bought a sizable stake in CACI International of Arlington, a professional services firm that does 70 percent of its work for the government.
A $148 million-a-year company, CACI was controlled by its founder, Herbert W. Karr, until his death last April.
During the past three years, CACI has seen its sales move up somewhat, but its profits have been flat, at about $4 million a year. Nothing very interesting has happened to its stock, either. The company's class A shares, traded on Nasdaq, were selling at $2.50 two years ago. And although they have fluctuated slightly, they are still at about $2.50.
As a result, the company's situation has evolved into three main themes:
First, investors looking at the price of the company stock have concluded that it is undervalued, making the company appear to be a candidate for a merger or takeover. That idea, in turn, brought out investors such as Parsow, who now has almost 10 percent of the stock. It also generated interest from Larry L. Pfirman of New Berlin, Pa., who bought 8 percent of CACI's stock and said he will go to 10 percent.
Second, the takeover talk became even more worrisome to Chairman J.P. "Jack" London and his colleagues at CACI, because they knew that Karr's death meant that they would be required to change their protectionist dual-share plan back to a single-share plan.
In 1986, when takeovers were happening every hour, CACI created two classes of stock. Class A had one vote per share and elected two directors, Class B had 10 votes per share and elected five directors. Karr owned 92 percent of the Class B shares.
In the future, the Class B shareholders will elect fewer and fewer directors and all Class B shares will be converted to Class A shares in three years, according to Charles P. Revoile, CACI's general counsel.
Third, because these changes would leave London and his colleagues without the control that Karr enjoyed, they moved to other defenses. They adopted a "poison pill" or anti-takeover plan. Then, recently, they asked shareholders to help them get rid of a rule that allows a majority of shareholders to use a "written consent" to approve matters affecting the company without calling a stockholders meeting.
If shareholders agree to the company's request, shareholders who want to take any action would have to wait until an annual meeting; shareholders may not call a special meeting on their own.
"What we are trying to accomplish is to prevent people from acting secretly," Revoile said. Allowing stockholders to act without a meeting and thus without approval by the directors is fine for small companies, he said, but not for large companies.
However, the proxy statement for the annual meeting next week acknowledges that getting rid of the "written consent" provision "could have the effect of discouraging a third party from making a tender offer or otherwise attempting to gain control of the company if that party were unwilling to submit its proposal to a vote of stockholders at a meeting."
As might be expected, CACI's proposal to the shareholders drew an angry response from Parsow, who previously suggested that the way to enhance shareholder value at CACI was to sell the company.
"Unless the CACI board of directors perceives some reason why a minority should control a majority, I would suggest that a majority of outstanding shares should be able to control CACI's destiny, and in particular take any actions which may be appropriate to enhance stockholder value, including, but not limited to, the outright sale of the company," Parsow declared.
Having said that, Parsow added that he would vote his 1.1 million Class A shares against the proposal.
Meanwhile, Pfirman, chairman of Tara Lee Inc., a women's sportswear company, said he probably would vote his 796,000 Class A shares against the plan. "I think it should be left the way it is," he said.
The objectors have the support of broker Stuart L. Melnick, a senior vice president at Wheat, First Securities in Bethesda. Melnick, his colleagues and clients represent a sizable number of Class A shares.
"I believe the amendment is unfair to shareholders," Melnick said. "By surrendering their right to written consent, shareholders effectively reduce their ability to act on matters that directly impact their investment."
Parsow also attacked on another front -- criticizing the amounts of money paid to CACI executives in salaries and bonuses.
During the last five years, he declared, the top eight executives drew $14 million in salaries and bonuses. By comparison, he claimed, 12 people at ERC International drew only $8 million during the same years.
Parsow pointed to the present proxy statement, which lists London's salary and bonuses at $494,639. Not included are benefits that take him over the $600,000 mark.
The benefits also do not count stock options exercisable in the next six months for London and other officers. London, who already has 127,000 Class A shares and 25,739 Class B shares, has options on 108,000 Class A shares.
In another category, London also has a choice of Class A or Class B shares. If he takes only the B shares, he is eligible for 495,000 shares. If he takes only the A shares, he could get 643,500 shares.
However, 100,000 of the Class B shares cannot be taken without approval from the National Association of Securities Dealers. The decision is part of a controversy over whether companies should be allowed to create super-voting-rights stock.
The far-reaching changes in CACI's stock plan were referred to by London in his annual report for fiscal 1990, which ended June 30, when he said the company was moving toward becoming "a fully independent, publicly owned corporation."
London also took note of the criticism about the stock price, as he promised to "vigorously concentrate on creating the true worth of the company." The company's 1990 book value, he said, was $2.65 per share.
"Our basic objective is to increase value over the long run, based on market strength and asset creation," he said.
The goal of developing market strength, however, may prove to be elusive. During the last few years, Karr's control of the company, the company's dual classes of stock and its flat profits tended to discourage shareholder hopes that a buyout would get them a premium for their stock.
Even now, the new controls represented by the poison pill and the proposed removal of "written consent" actions may tend to discourage shareholders seeking a buyout premium. And, by the time there is one class of stock, insiders may own a much larger percentage.
All of which may point to one of the reasons that there seem to be few, if any, stock analysts who follow CACI or write reports about the company.
Although CACI ranks 30th in The Washington Post list of the top 100 companies in this region, as ranked by sales, and although 11 national investment institutions hold 931,000 shares of CACI, the company does not seem to have any visible following among securities analysts.
Shareholders thus may wonder whether CACI executives seem to be trading a low profile for a low stock price in the hopes of avoiding attention from investors with hot money looking for takeover action.
CACI shareholders will soon have a chance to tell management how they feel about the effort to remove the "written consent" action feature of the bylaws. But, if they want to do so in person on Nov. 29, they will have to go -- not to Arlington as usual -- but to the Hyatt Islandia Hotel in San Diego, Calif. That's where this year's meeting is being held.