NEW YORK, Aug. 28, 2019 /PRNewswire/ -- Gilead Capital LP
("Gilead Capital"), a long-term shareholder of Monotype Imaging
Holdings Inc. (NASDAQ: TYPE) ("Monotype" or the "Company"), today
responded to the release of the Company's proxy statement dated
August 26, 2019, regarding the
proposed sale of Monotype to the private equity firm HGGC for
$19.85 per share.
Gilead Capital believes that rather than explaining why the
proposed sale offers "tremendous value," the proxy statement
instead validates our concerns, as stated in our most recent
letter, about the Board's dereliction of its fiduciary duties and
further undermines the Board's credibility. Based on Gilead
Capital's review, it appears the Board:
- Decided to sell the company at a heavily discounted price
despite management's 2019 EBITDA forecast of $79 million being ahead of both consensus
($73.2 million) and management's own
guidance ($71.5-$78.5 million)
- Failed to form an independent special committee to negotiate
the sale of the Company and allowed the CEO, who is wholly
conflicted with regard to the transaction in light of the disclosed
nearly $8mm payout to him, to play a significant role in the
negotiation of the transaction
-
- By waiting to form a "Transaction Committee," which shared the
same legal and financial advisers as used in the sale process,
until the day it requested a "last and final offer" from HGGC, the
Board failed to rigorously assess reasonable alternatives or to
provide independent oversight of the sale process
- Demonstrated its short-termism and failure to appreciate the
Company's intrinsic value by citing short-term and non-fundamental
risks such as quarterly volatility, changes in revenue recognition
rules, and the prospect of a 2008-magnitude recession as reasons it
approved this proposed sale
- Rushed to sign the deal before announcing second-quarter
earnings in order to ensure the sale price was at a "significant
premium" to the stock price, presumably fearing that the
second-quarter earnings beat would lift the stock price closer to
or above the deal price
- Provided conflicting timelines regarding the 2018 sale process
in SEC disclosures
-
- The Company filed a proxy statement regarding Starboard Value's
director nominations on January 31,
2018, in which the Company stated that "[i]n July 2017, well before Starboard filed its 13D …
the Board decided to engage J.P. Morgan to explore… strategic and
financial alternatives." Yet the most recent preliminary proxy
statement indicated that the Company did not discuss with J.P.
Morgan "the possibility of J.P. Morgan acting as its financial
advisor in evaluating strategic alternatives" until August 2017 and did not engage the firm until
September 22, 2017, concurrent with
the Company's "extensive discussions" with Starboard. At a minimum,
this discrepancy raises questions about the trustworthiness of the
Company's SEC disclosure.
As a result, the proxy statement has left us with more questions
than we had before, including:
- Why decide to sell our Company when the stock price is at a
6-year low and the Company's own projections are significantly
higher than consensus?
- When and why did the Board terminate its stock buyback
program? What has fundamentally changed in the business's
long-term outlook to cause the Board to switch from being a buyer
to a seller?
- Why did the CFO resign in the middle of heated negotiations,
and did that negatively impact the final deal price?
- Why didn't the Board form an independent special committee to
oversee the sale process and evaluate alternatives?
- Why did the Board issue "single trigger" Company PSU awards to
the CEO and allow him to potentially make $7.7 million from this change of control
transaction?
- If management's financial projections support the commitment of
more than $625 million of debt
($15.25 per share!), what prevents
the Company from utilizing this significant financial capacity to
preserve and maximize long-term value as a public entity?
- Why does the Board believe that leveraging the Company at
nearly 8x EBITDA will give it "added flexibility"?
- Why won't shareholders be better off voting down the deal,
changing the Board and management, divesting Olapic, reducing
overhead, and repurchasing shares at a large discount to intrinsic
value?
So that all shareholders can make a fully informed vote, we
reiterate our original demand that the Board hold a conference call
to answer shareholder questions like those above, discuss the
Company's recent business performance, and explain its rationale
for proposing a sale of the Company at the same price it executed
its most recent buybacks.
We continue to see this proposed sale as an inappropriate
transfer of value from public market investors to management and
its preferred private buyer. Gilead Capital currently intends to
vote against this transaction.
About Gilead Capital LP
Gilead Capital LP is an investment adviser focused on long-term
investments in high-quality public small-cap companies in
North America, Europe, and Australia. Gilead Capital
pursues a Leadership Investing strategy, supporting its portfolio
companies by constructively engaging with management teams and
boards of directors to elevate governance and enhance long-term
value for the benefit of all shareholders.
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SOURCE Gilead Capital LP
