Kirk Mandy. (Image supplied)

Zarlink Semiconductor on Tuesday morning fired back its response to the slate of directors proposed by a group of shareholders looking for a change, with the company persisting in accusing the dissident group of ignoring long-term growth in favour of short-term gains.

"As evidenced by the trading pattern disclosed in the circular issued by hedge fund manager Mr. Scott Leckie, Mr. David Banks and Mr. Daniel Owen, these individuals are traders rather than long-term holders of the shares," Zarlink CEO Kirk Mandy said in a statement.

"At the same time, the circular misstates Zarlink's financial results, product direction and strategy. As one example, we have made progress in our cost-reduction efforts and are now significantly better than the operating expense metrics of comparable companies in our sector, which Mr. Leckie highlighted in the circular as a key objective of their plan. We expect to continue these efficiency improvements in order to drive further operating margin improvements and profitability."

Zarlink spokesperson Ed Goffin told OBJ that the group was presenting a skewed view of the company's financials, and that many of the numbers the shareholders' group were using pointing to the structure the company had before it was spun off from Mitel.

"They are using a select view of financials for the sole purpose of getting maximum shock value to suit their agenda," Mr. Goffin said. "They are looking at revenue from the telecom meltdown, an industry phenomenon that didn't just impact Zarlink, and you would see a similar decrease for any company in the industry ... a lot of the numbers they are talking about are dated numbers."

The company reiterated its first-quarter guidance as a demonstration that the current management is "executing on a clearly set strategy," with Zarlink expecting revenues to grow to between US$59 million and $61 million, roughly double the $30.6 million in sales seen a year earlier and an eight- to 11-per-cent increase from the fourth quarter.

Gross margins are expected to be between 46 per cent and 48 per cent in the first quarter of fiscal 2009, excluding integration costs of $1 million to $1.5 million from its acquisition of Texas-based Legerity Holdings, and the company is anticipating break-even earnings per share.

As well, the company noted that total research and development and selling and administrative expenses are expected to be $25 million to $26 million, or between 42 per cent and 43 per cent of revenue.

Mr. Leckie, who manages funds that hold 5.2 per cent of Zarlink's shares, and his group had previously argued that Zarlink's cost structure was more than twice as high as industry norms. The group has also pointed out that Zarlink's share price had lost almost 95 per cent of its value since January 2002.

As well, Mr. Leckie had taken issue with having his funds being called hedge funds with a short-term agenda, noting that his funds had held Zarlink shares for more than three years, while Mr. Owen and Mr. Banks first invested in Zarlink in 2005.

Together, Mr. Leckie's funds, Mr. Owen and Mr. Banks own 5.9 per cent of Zarlink's shares.

The proposed slate of directors would see Mr. Banks, a managing partner of Carlyle Banks & Co. who has previously worked at Chase Manhattan and AT&T Capital, replace Mr. Mandy as interim CEO, while Mr. Owen would take over from incumbent chair Henry Simon.

Zarlink labelled the proxy threat "disruptive" in its statement and warned that it could force the company to incur unnecessary costs.

"The hedge fund's call for the removal of Zarlink's CEO and chairman of the board and five directors would have immediate and lasting negative consequences for the company's growth prospects for the future," the company's statement read.

Mr. Goffin added that the company was of the opinion that the proposed slate of directors "lacked expertise," and said that the vision the group had outlined was, in fact, the same strategy that the company's management had adopted three years ago.

"There's nothing tangible in the plan, and they don't identify any product opportunities other than a few examples where they're repeating what we're already doing. They point to the medical division as an area for great potential, and we fully agree with that and started exploiting that potential three years ago," he said. "They're pointing to markets that are really, in our opinion, legacy technologies, with no forward-looking vision."

Zarlink's stock price was up by five cents to 90 cents at 2:21 p.m. on the Toronto Stock Exchange.

To read more about the proxy battle threat at Zarlink, click on Shareholder: Zarlink performance 'shocking' and Zarlink shareholders stage coup.