Costa Brava claims conflict of interest in Philips' sale of its MedQuist interests

By Lisa Kerner

Charlotte, N.C., Jan. 7 - MedQuist Inc. investor Costa Brava Partnership III LP expressed concern over the sale of company stock by shareholder Koninklijke Philips Electronics NV and cited a conflict of interest of the Philips executives on MedQuist's board of directors.

Costa Brava outlined its concerns in a Jan. 7 letter to MedQuist board member Clement Revetti Jr., who is also a senior executive of Philips.

The letter was included in a schedule 13D filing with the Securities and Exchange Commission.

In November, Philips said it would sell its 70% ownership of MedQuist if "a satisfactory price and other acceptable terms can be realized," according to a prior company news release.

"Philips caused the resignation of three independent directors of MedQuist and forced MedQuist to seek a sale of itself for Philips' benefit, to the detriment of MedQuist's minority public stockholders," Costa Brava's letter asserted.

Costa Brava's Andrew Siegel said Revetti and chief executive officer Howard Hoffman failed to adequately answer questions at MedQuist's annual meeting on Dec. 31.

Siegel asked if board members Rusckowski, Sebasky, Weisenhoff and Revetti will be recused from the MedQuist sale process and if Philips will compensate MedQuist's public minority stockholders in the sale process for amounts diverted to Philips "from its continuing vendor relationship with the acquirer of MedQuist."

Costa Brava said it is prepared to seek injunctive relief and monetary damages caused by violations of the New Jersey Shareholders Protection Act, the letter stated.

In December, MedQuist was ordered to provide Costa Brava with:

• Copies of certain minutes of meetings of MedQuist's board of directors and its audit and supervisory committees;

• Certain information related to the company's evaluation of a possible sale transaction;

• The resignation letters of the directors who resigned on Nov. 9; and

• Unredacted versions of the Sept. 23, 2004 and Sept. 21, 2007 OEM agreements with Philips Speech Recognition Systems GmbH, Philips Austria GmBH and Philips Speech Processing.

The reporting persons, other than Siegel, beneficially own some 1.93 million shares, or 5.2%, of the Mt. Laurel, N.J., medical transcription technology and services company.

Siegel beneficially owns 2,000 shares, or less than 1%, of MedQuist.

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