News Column

Dissident shareholders urge Synacor's board to sell the company

June 26, 2014

By David Robinson, The Buffalo News, N.Y.



June 26--Synacor Inc.'s dissident shareholders want the company to stop its search for a new chief executive and put the company up for sale.

A pair of investment funds that control nearly 10 percent of Synacor's stock urged the Buffalo Internet content provider's board of directors to hire an investment banking firm to seek out potential buyers, arguing that it is the best way for shareholders to capitalize on the underlying value of the business.

"We are confident that Synacor will have serious interest from multiple parties at prices far in excess of the current share price," the investment firms, JEC Capital Partners and Ratio Capital Partners, said in a letter to Synacor's board that was disclosed in a Securities and Exchange Commission filing this morning.

The letter is a major escalation in the dissident shareholder's criticism of Synacor's management and its strategy. And because the two investment firms control a joint stake of 9.8 percent of Synacor's stock, their extensive holdings put the shareholders in a position where their opinions carry significant weight.

"We are also confident that the majority of Synacor's shareholders are in support of an open and formal sale process," the letter said. "We are not the only shareholders taking notice and we understand that this message has been communicated to the board repeatedly by numerous shareholders," the investors wrote.

Synacor's stock has fared poorly since the company went public at a price of $5 per share in a March 2012 initial public offering. The shares closed Wednesday at $2.53 -- a little more than half of the IPO price as the company's business has struggled.

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 revenues, which totaled $112 million last year, with expectations that sales will decline by another 11 percent this year to $100 million.

New products that the company hopes will become additional sources of revenue also have taken longer than expected to develop.

The investors sharply criticized Synacor's board and its top executives for failing to explain its strategy for rebuilding its sales base and how that approach will reward shareholders, compared with an immediate sale of the company.

"We believe that the reason no such strategy has been disclosed is that one does not exist," the letter said. "As a result, we do not believe there is a realistic chance of shareholder value creation from operating autonomously, and Synacor has zero chance of retaining a world-class CEO who can regain some of the shareholder value that has been squandered."

The dissident shareholders also leveled some stinging criticism at Synacor's chairman, local venture capitalist Jordan Levy, whom they accused of placing the interests of the Buffalo Niagara region in keeping the company's headquarters here over the interests of shareholders.

The investors said they had held discussions with Levy over the past few days.

"Unfortunately, the only thing Mr. Levy said that we ultimately agreed with is that the Board is not proud of the poor operating results and that those results have led to a massive destruction in shareholder value," the investors wrote.

"Investors, analysts and industry sources attribute the Board's indifference towards interested buyers to your Chairman, Jordan Levy's, self-interested and civic-minded agenda to maintain the headquarters of a public technology company in Buffalo," they wrote.

Synacor currently is searching for a new CEO to replace Ronald N. Frankel, who has said he plans to retire when a successor is found.

"We do not believe there is a realistic chance for improvement from a change in CEO," the investors wrote.

JEC Capital, based in Randolph, Mass., has taken an active role at companies such as Ithaca Energy and KIT digital. The firm said in the filing that it holds a 4.9 percent stake in Synacor. Ratio Capital, which is based in Amsterdam, also said it holds a 4.9 percent stake.

Neither Levy nor other Synacor executives could be reached for comment this morning.

email drobinson@buffnews.com

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(c)2014 The Buffalo News (Buffalo, N.Y.)

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Source: Buffalo News (NY)


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