Synacor's dissident shareholders call for Jordan Levy to leave [The Buffalo News, N.Y. :: ]
(Buffalo News (NY) Via Acquire Media NewsEdge) July 15--Synacor Inc.'s disgruntled shareholders, who already are pushing for the Buffalo-based Internet content provider to be sold to the highest bidder, now are calling for the resignation of company chairman Jordan Levy and are seeking two seats of its board of directors.
Synacor's board fired back by adopting a stockholder rights plan that would make a hostile takeover of the company much more expensive and giving potential acquirers a strong financial incentive to negotiate any deals through Synacor's board.
And Synacor charged that Peter Heiland, the managing director of one of the dissident investment firms, JEC Capital Partners, is the interim CEO of Piksel, a New York City-based competitor that offers similar Internet content services and a similar customer base in the media industry.
Piksel has "the capability to become a potential acquirer, and as such, may have motives that are not aligned with other shareholders," Levy said in a statement today. "We have concerns regarding the motivations and actions of JEC Capital Partners,"
The latest moves are a further escalation of Synacor's three-week-old battle with the dissident investors over the company's long-term future.
While Synacor's board has said it is excited about the company's business and its plan to develop new products that will allow consumers to access the Internet content that it produces for its clients in new ways, the dissident shareholders said they have no confidence in that strategy or the ability of the firm's current leadership to stem its current losses or reverse its declining sales.
"Immediate board change is needed," the disgruntled shareholders -- investment firms JEC Capital and Ratio Capital Management -- said in their latest letter. JEC Capital, a Randolph, Mass., investment firm, has taken an activist role at other companies, including Piksel and Ithaca Energy. Ratio Capital is an investment firm based in the Netherlands.
"There is no possible justification for giving yourselves more time to work on your stated goal of 'maximizing long-term value.' Many other shareholders feel the same," the shareholders wrote.
Synacor said its stockholder rights plan, which would kick into effect if an investor or a group of affiliated shareholders acquired a stake of 10 percent or more in the company, is not aimed at preventing a takeover or sale of the firm.
"The rights plan is designed to protect the interests of all our shareholders," Levy said in the statement. "In order to guard against potential attempts to seize control of the company without paying an appropriate premium, we are taking this action today."
The dissident shareholders, who own a combined stake of 9.8 percent in Synacor, repeated their demand that the company put itself up for sale, arguing that a deal would draw interest from multiple bidders and command a price "far in excess" of the stock's current price of $2.59 per share, which is a little more than half of its $5 initial public offering price in February 2012. The shareholders also want the company to stop its search of a new chief executive officer to replace the retiring Ronald Frankel, who plans to keep running the company until a successor is found.
"Rather than pursuing a value-maximizing transaction, we believe that the board is blindly pinning its hopes on a new CEO who has yet to be identified," the shareholders wrote. "Given the board's track record of failed leadership, we expect that the CEO selection you make will be another failure."
The shareholders singled out Levy, the Buffalo venture capitalist who has been a member of Synacor's board since 2001, for the harshest criticism. "We believe that the heart of the problem with the current board is its chairman, Jordan Levy," the shareholders wrote.
The investors criticized Levy for his role in approving an "above-market" severance agreement with Frankel and providing board members with cash payments and stock options as compensation for their service as directors that are "unjustified by the performance of the company."
They also criticized Levy for "consistently rewarding long-standing and ineffective directors (Mr. Levy included) by nominating them for reelection."
Behind the fight over Synacor's future is the company's current financial struggles.
Synacor lost $1.4 million last year as its revenues slid by 8 percent after a change by Microsoft in its Windows 8 operating system relegated the start pages that Synacor operates for its customers to a secondary screen that requires additional clicks for users to access. That led to an 8 percent drop in Synacor's sales, which totaled $112 million last year, with expectations that sales will decline by another 11 percent this year to $100 million.
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