SiliconBeat

Dialectic Capital Management boosted the stake their funds hold in Leadis Technology, the Sunnyvale maker of mixed-signal chips used in flat-panel displays, to 10.3 percent. In the last 60 days the firm has acquired 169,093 shares that it paid $128,515 for, at an average price of 76 cents per share.

Dialectic reported the holdings on a form 13-D, along with the disclaimer that its investment managers, John and Luke Fichthorn “have been and may continue to be” in touch with Leadis’s board, other “significant shareholders and others regarding alternatives” the company could employ to increase shareholder value.

Among the “alternatives” Dialectic suggests are improvements to the company’s board and management,the repurchase of its shares the sale of various subsidiaries reducing business costs and “realizing the value of its non-strategic assets”

Chances are good that among the “significant shareholders” with whom Dialectic has been in touch is Kettle Hill Capital Management’s Andy Kurita who works on Park Avenue about 10 blocks down and two Avenues west of Dialectic. Kettle Hill also filed a 13D earlier this month disclosing the acquisition of an 11.5 percent stake in Leadis, including 507,300 shares it bought from Sept. 29 to Oct. 3, paying $328,145 or an average of 65 cents per share.

Kurita sent his own letter to Leadis’s board on Oct. 6 and it was a tad bit more direct right from the top: “We are writing this letter to you to demand that Leadis take immediate and decisive action to increase value for all of the company’s stakeholders.”

The heart of the matter is this: “Leadis’s market value at the close on Friday (Oct. 3) was about $18 million, despite having management’s estimate of $46 million in cash at the end of September. The math is simple - based on these figures, Leadis now has a negative enterprise value of approximately $28 million. This indicates to us that the investing public has no confidence in the company and its prospects. We believe that Leadis’ current strategy is deeply flawed and have determined that we can no longer sit by as the enterprise value of Leadis continues to erode.”

The “alternatives” suggested by Dialectic mirror many of Kurita’s suggestions included in his letter to Leadis, although without his specificity (we particularly enjoy #3):

1. Consider appointing shareholders to the company’s board of directors.
2. Sell one or more of the company’s ancillary business units.
3. Implement significant cost reductions. To clarify this, immediate means not in four weeks and not in two months. Immediate means NOW. Significant means not by $2 or $3 million per quarter. It means by $5 or $6 million per quarter.
4. Implement a significant share repurchase plan.
5. Restructure management’s economic incentives to be more squarely aligned with the interests of all of the company’s shareholders.

Leadis has yet to file any reply to Kurita’s letter, which ended with the words, “We look forward to your prompt reply.”