ISG wins proxy battle after Quorum cancels takeover effort

Dissident group lost support of large investors

Executives at medical imaging software developer ISG Technologiesare breathing sighs of relief this month after winning a bruisingfight for control of their company. ISG, of Mississauga, Ontario,fended off a dissident shareholder group that had hoped to reinstallformer president and CEO Thomas Cafarella and refocus the companyon the PACS market (SCAN 12/18/96).

Quorum Growth launched the takeover fight last month, with executivesof the Toronto-based investment group stating that they were dissatisfiedwith the performance of ISG's stock. At the time of the proxybid, Quorum had a 7.4% stake in ISG, although in past years itsposition was closer to 30%.

Quorum and Cafarella felt that ISG should shed its image-guidedsurgery business and concentrate on developing PACS products tobe integrated with information systems. In addition to Cafarella,Quorum proposed that former ISG executive Denis O'Connor be broughtback to the company.

ISG and Quorum fought a bitter war of words in the weeks leadingup to the company's Dec. 23 shareholder meeting, when the proxyvote would take place. Quorum issued an investor packet that includedcharts showing ISG's stock underperforming the Technology SoftwareIndex, and comparing the firm's performance with statements byGreenberg in several years' worth of ISG annual reports, whichclaimed that profitability was just around the corner.

ISG countered by producing a letter from ISG employees supportingGreenberg and asserting that many employees left during Cafarella'stenure at the company, due to his management style. ISG also saidthat a number of its medical imaging customers had written letterssupporting the current management.

Ten days before the proxy vote, Quorum claimed to have some 30%of ISG shareholders backing its position, with more leaning itsway. Quorum's support began to erode, however, in the face ofan aggressive lobbying effort by ISG executives to support theirposition. After a major ISG institutional investor switched tosupport existing management, Quorum on Dec. 18 announced thatit was abandoning the proxy fight and had sold its stake in ISG.

ISG now must rebuild confidence in a company that saw more thanits fair share of turmoil in 1996. Company officials, however,say that their job should be easier now that Quorum has divestedits stake in the company.