UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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ROVI CORPORATION ISSUES LETTER TO STOCKHOLDERS URGING THEM TO VOTE
THE BLUE PROXY CARD
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ROVI IS EXECUTING ON A PLAN TO CREATE VALUE FOR STOCKHOLDERS |
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ENGAGED CAPITAL DOES NOT EVEN HAVE A PLAN |
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ROVIS BOARD IS COMMITTED TO AUGMENTING WITH THE RIGHT EXPERTISE |
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ENGAGED CAPITALS NOMINEES ARE NOT RIGHT FOR ROVI OR ITS STOCKHOLDERS |
SANTA CLARA,
Calif. (BUSINESS WIRE) May 5, 2015 Rovi Corporation (NASDAQ:ROVI) today issued the following letter to all Rovi stockholders in connection with its 2015 Annual Meeting of Stockholders, which will be held on May 13, 2015:
Dear Fellow Stockholders,
THIS IS A
CRITICAL YEAR FOR EXECUTION: DONT LET COLORFUL COMMENTARY
ABOUT THE PAST PUT AT RISK THE VALUE CREATION CURRENTLY UNDERWAY
ROVI URGES STOCKHOLDERS TO REJECT ALL ENGAGED CAPITAL NOMINEES
VOTE FOR ALL ROVI DIRECTORS ON THE BLUE PROXY CARD TODAY
Rovis Annual Meeting is quickly approaching, and you face an important decision. Engaged Capital claims that Rovi needs change. The critical question
for our stockholders is whether nominees selected by a hedge fund manager with no substantial experience in our fast-moving industry can change Rovi for the better. Rovis Board of Directors has architected a strategic plan to deliver
significant value to our stockholders, and that plan is beginning to bear fruit. DO NOT RISK DISRUPTING THE VALUABLE OPPORTUNITIES AHEAD BY VOTING FOR ENGAGED CAPITALS NOMINEES SIMPLY FOR THE SAKE OF CHANGE.
Rovis Board is continuing to enact change for the benefit of all stockholders and you deserve the RIGHT changes that will create
value on your investment. We are still in the process of augmenting our Board, adding new perspectives and valuable experience. We want to add the RIGHT directors with the RIGHT experience, selected with
stockholders best interests in mind through a genuine process. We firmly believe that Engaged Capitals nominees do not possess the qualifications or offer the value our stockholders deserve.
We strongly believe that Engaged Capital is the WRONG change for Rovi today. All three Engaged Capital nominees have clear track records of
value destruction at other public companies, and not one of them has presented a semblance of a future plan for Rovi or ideas to create value for you. In contrast, our Board has set in motion a long list of positive changes to put Rovi on a path for
sustainable value creation.
1
ENGAGED CAPITALS NOMINEES ARE WRONG FOR ROVI
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Glenn Welling is a hedge fund manager with no known intellectual property (IP) experience or demonstrated operational ability, much less in the technology field. |
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David Lockwoods qualifications are inferior and unneeded, as ISS and Glass Lewis have agreed. |
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Raghavendra Rau and Engaged Capitals other nominees have clear records of value destruction at other public companies, as you can see here
[http://www.rovicorp.com/content/dam/rovicorp-ancillary/dm3/corp/proxy_apr15/050415b.pdf] (Link to Rovis Perspectives on Engaged Capital Nominees Prior Board Performance. Please see Exhibit 1 included herewith).1 |
Over the past 2 years, Mr. Welling has publicly offered his ideas
generic capital allocation strategies, for the most part to a number of companies, while deliberately raising his hedge funds profile as a shareholder activist. The results are very concerning:
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At Abercrombie & Fitch which has been operating with four Engaged Capital-approved directors for over a year alpha has been negative (56%). |
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At TriMas (TRS) and Jamba Inc. (JMBA) the only other two companies where Engaged Capital has board representation or influence alpha has been negative (4%) for TRS and a meager 3% for
JMBA, and Mr. Welling has been on the Board for less than four months at JMBA. |
Do not be fooled by materials Engaged Capital has filed
during this campaign. The hedge fund appears to claim credit for the returns of companies in its portfolio despite a lack of Board involvement in achieving those returns at any one of them. Glenn Wellings record on corporate boards is
clear and it is troubling.
One of his nominees, David Lockwood, is in our opinion, unqualified. Both ISS and Glass Lewis recommended
against him, despite their tendency to recommend in favor of dissident candidates for no reason other than change for changes sake. Independent third parties have warned Rovi and its stockholders of Lockwoods value-destroying
missteps while running IP negotiations for Unwired Planet. In fact, he presided over negative alpha at Unwired Planet (negative 64%), Liberate Technologies (negative 44%), InterTrust Technologies (negative 2%), BigBand Networks
(negative 38%) and EnergySolutions2 (negative 57%). Despite the value destruction at EnergySolutions, Lockwood received substantial payments during his tenure, including $16.8
million in cash to settle existing obligations owed to him. Also, while serving on the Liberate Board, Lockwood received severance payments based on a partial asset sale, a continued employment arrangement and a $325,000 cash bonus. We
believe there is legitimate reason to conclude, based on his prior board and management experience, that David Lockwood could put Rovis IP business at unnecessary and substantial risk.
Raghavendra Rau also has a poor track record when it comes to value creation. Alpha at Aviat Networks was negative 152% during Raus Board
tenure, and it was negative 110% during his Board tenure at SeaChange International. In fact, after being brought to SeaChange as CEO and a member of the Board of Directors by activist investor Starboard Value, he was replaced less
than three years later.
ENGAGED CAPITAL HAS NO PLAN FOR ROVI
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Rovis Board listens to Rovis stockholders and is making the changes that make sense for Rovi, with a transparent plan to create stockholder value. |
1 All references in this section use Alpha calculated as return on stock (including reinvested dividends
and adjusted for spin-offs, splits and other corporate events) against the S&P 500 Total Return Index during Board tenure. Start dates based upon disclosed effective dates. Source: FactSet as of May 1, 2015.
2 Remains on the Board of EnergySolutions following take-private.
2
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Rovi stockholders deserve to know what Engaged Capital nominees will do differently if elected. |
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The vague ideas Engaged Capital has advanced suggest Engaged Capital does not understand the dynamics that drive Rovis revenues. |
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Do not trust your investment to Board members that will still be learning Rovis business during critical near-term events such as the Big-4 renewals and next-generation product launches the risk of
disruption is too high. |
We believe it is crucial that Rovi stockholders understand what Engaged Capitals nominees intend to do if
elected to the Board. It is highly troubling to Rovi that even after an extensive proxy campaign and several letters and presentations to you, Engaged Capital and its nominees have outlined NO PLAN for Rovi. There are no new ideas, not
even a broad high-level vision to create the value that Rovi stockholders deserve.
The vague steps Engaged Capital has hinted at are generic capital
allocation and cost cutting strategies that Engaged Capital has advanced at a broad array of other companies apparel companies, beverage companies and the like which have very different business models than Rovi. Importantly,
Rovis Board and management have been open to these ideas, and discussed them with Engaged Capital, thoughtfully considered them along with suggestions from other stockholders, and taken action with respect to changes that the Board believes
are in Rovis best interest.
We believe Engaged Capital poses significant risk to the future value of your investment. Without any plan
beyond cost-cutting, Engaged Capital appears poised to push for unnecessary and dangerous changes to Rovis product strategy, which could destroy our next-generation product business, and in turn threaten our IP business by disrupting synergies
between our IP and product businesses that are so important to stockholder value.
Importantly, we think stockholders should ask: Why now? Why not wait
another year and judge the Company on the merits of the Big-4 renewals, or the success of our new product launches? Rovi has already conducted a comprehensive strategic review of its business and spent the last three years rebuilding the Company
into what it is today. Rovi is experiencing momentum and traction with our next-generation products, well-positioned to enter into a very critical year of renewing major licenses, and on track to achieve double-digit revenue growth in 2016 and
2017. The start of yet another review period at this juncture would essentially set Rovi back in time, risk disrupting the significant progress we have made, and cost us present-day opportunities. We question Engaged Capitals
intentions and motivations in starting this process to gain representation on the Board and think our stockholders should too. Is Engaged Capital acting in stockholders best interest or are they more interested in building a name for
themselves as a shareholder activist?
Rovis Board has been listening to the Companys stockholders. For example, the Board
recently reduced its own compensation reflecting recent conversations with a number of Rovi stockholders, and Rovi received affirmative support from both proxy rating agencies this year for its executive compensation program.
We believe Engaged Capital has given Rovi stockholders no good reason to trust that its candidates would provide more thought, generate better ideas or
deliver more value than Rovis current directors, who have carefully repositioned the Company over the past three years. It is imperative that Rovi stockholders protect themselves against a hedge fund manager who could dismantle the very
strategy that Rovis Board and management thoughtfully put in place a strategy that is working.
3
ADDITIONAL PERSPECTIVES ON ISS AND GLASS LEWIS RECOMMENDATIONS
Rovi strongly disagrees with ISS and Glass Lewis recommendations that stockholders vote for Engaged Capital nominees Raghavendra Rau and Glenn
Welling. Respectfully, we believe these recommendations demonstrate a lack of understanding of Rovis business and growth trajectory.
ISS has stated
that when dissidents seek a minority position on a Board, they do not require a detailed plan of action, nor that the dissidents prove their plan preferable to the incumbent plan from the dissidents. Rovi strongly disagrees with this
point of view and believes this hall pass for minority-seeking dissidents represents a naïve view of boardroom dynamics and the impact of each Director on a companys strategy particularly for companies like Rovi that
have undergone a transformation and face critical execution milestones in the year ahead.
We recommend that all Rovi stockholders review the
Companys response to the recommendations issued by ISS and Glass Lewis, which can be viewed here [http://www.rovicorp.com/content/dam/rovicorp-ancillary/dm3/corp/proxy_apr15/iss_gl_reco.pdf] (Link to Perspective on the ISS & Glass
Lewis Recommendations. Please see Exhibit 2 included herewith).
ALLOW ROVI TO CONTINUE EXECUTING THE PLAN THAT IS WORKING FOR YOU
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Rovi operates in a fast-moving technology environment. |
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Rovi stockholders deserve qualified Board members with the RIGHT areas of expertise to guide Rovis strategy. |
As our stockholders and equity analysts are well aware, Rovi operates in a rapidly changing industry. Rovi needs a Board that can identify the opportunities
ahead and has an acute understanding of the market environment and the customers Rovi serves. The Board has acknowledged and taken responsibility for its past decisions that have not proven successful and most importantly learned from
them. The actions taken over the past three years to transform the Company were effected by Rovis current Board of Directors, and reflect the Boards understanding of our dynamic market. As a stockholder, if you want to see additional
expertise on the Board, make sure it is the RIGHT expertise. A hedge fund manager and failed technology executive are, in our opinion, NOT the right choices.
The bottom line is: Rovi is prepared to make the RIGHT changes with qualified nominees like recent addition Steven Lucas. We continue to
actively augment our Board and management team with the relevant expertise to continue executing our plan to achieve double-digit revenue growth with expanding margins in 2016 and 2017. We trust that Rovi stockholders will see Engaged Capitals
distracting tactics, and allow our Board to rightfully focus on the path ahead.
We look forward to your support at the upcoming Annual Meeting by voting
FOR ALL nominees on the BLUE proxy card and protecting your investment.
Thank you.
FORWARD LOOKING STATEMENTS
This communication contains
forward-looking statements, including, without limitation, all statements related to Rovis ability to achieve its goal of enhancing stockholder value through the execution of its strategic plan, including all statements related to
upcoming significant intellectual property license renewals, expected revenue growth, margin expansion and cash flow, new product and IP business opportunities, and the timing thereof, customer growth, expected return on the investments in core
areas of the business; the statements related to Engaged Capitals proposed reduction of product investment and
4
its negative effect on the stockholder value; and other statements that are not historical facts. Any statements contained in this press release that are not statements of historical fact may be
deemed to be forward-looking statements. Words such as anticipate, believe, could, expect, may, plan, will, would and similar expressions are intended to
identify forward-looking statements. These forward-looking statements are based upon Rovis current expectations. Forward-looking statements involve risks and uncertainties. Rovis actual results and the timing of events could differ
materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation: risks related to Rovis ability to successfully execute on its strategic plan and customer
demand for and industry acceptance of Rovis technologies and integrated solutions; Rovis ability to successfully renew its major intellectual property license agreements; and risks related to future opportunities and plans, including the
uncertainty of future operating results. These and other risk factors are discussed under the heading Risk Factors in Rovis Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and
Exchange Commission on February 19, 2015. Rovi expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Companys
expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based.
If you
have any questions, require assistance with voting your BLUE proxy card
or need additional copies of the proxy materials, please
contact:
MacKenzie Partners, Inc.
105 Madison Avenue
New York, NY
10016
proxy@mackenziepartners.com
(212) 929-5500 (Call Collect)
Or
TOLL-FREE (800) 322-2885
ADDITIONAL INFORMATION AND WHERE TO FIND IT
Rovi
Corporation, its directors and certain of its executive officers may be deemed to be participants in the solicitation of proxies from stockholders in connection with Rovis 2015 Annual Meeting of Stockholders. Rovi has filed with the SEC and
has provided to its stockholders a definitive proxy statement and a BLUE proxy card in connection with such solicitation. ROVI STOCKHOLDERS ARE STRONGLY ENCOURAGED TO READ SUCH PROXY STATEMENT (INCLUDING ANY AMENDMENTS AND SUPPLEMENTS)
AND ANY OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
Information regarding the names of
Rovis directors and executive officers and their respective interests in Rovi by security holdings or otherwise is set forth in Rovis definitive proxy statement for the 2015 Annual Meeting of Stockholders, filed with the SEC on
April 13, 2015, and in Rovis annual report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 19, 2015, which documents are available at the investor relations portion of Rovis website at
http://ir.rovicorp.com/CorporateProfile.aspx?iid=4206196. To the extent holdings of such participants in Rovis securities have changed since the amounts described in the 2015 proxy statement, or if a particular
5
participants holdings are not set forth in the 2015 proxy statement, such holdings (or changes thereto) have been reflected on Initial Statements of Beneficial Ownership on Form 3 or
Statements of Change in Ownership on Form 4 filed with the SEC. Information regarding the special interests of such participants, if any, in the matters to be voted on at Rovis 2015 Annual Meeting of Stockholders is included in the definitive
proxy statement referred to above. You can obtain free copies of these referenced documents as described below.
These documents, including the definitive
proxy statement (and amendments or supplements thereto) and the accompanying BLUE proxy card, and any other relevant documents and other material filed by Rovi with the SEC, are or will be available for no charge at the SECs
website at www.sec.gov and at the investor relations portion of Rovis website at http://ir.rovicorp.com/CorporateProfile.aspx?iid=4206196. Copies may also be obtained free of charge by contacting Rovi Investor Relations by mail at 2830
De La Cruz Boulevard, Santa Clara, California 95050 or by telephone at (408) 562-8400.
About Rovi Corporation
Rovi is leading the way to a more personalized entertainment experience. The Companys pioneering guides, data, and recommendations continue to drive
program search and navigation on millions of devices on a global basis. With a new generation of cloud-based discovery capabilities and emerging solutions for interactive advertising and audience analytics, Rovi is enabling premier brands worldwide
to increase their reach, drive consumer satisfaction and create a better entertainment experience across multiple screens. The Company holds over 5,000 issued or pending patents worldwide and is headquartered in Santa Clara, California. Discover
more about Rovi at Rovicorp.com.
Contacts:
Investors
Peter Halt / Peter Ausnit
Rovi Corporation
(818) 295-6800 / (818) 565-5200
Dan Burch
MacKenzie Partners, Inc.
(212) 929-5500
Media
John Christiansen / Megan Bouchier
Sard Verbinnen & Co
(415) 618-8750
# # #
6
Exhibit 1
Rovis
Perspectives on Engaged Capital Nominees Prior Board Performance
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Rovis Perspectives on
Engaged Capital
Nominees
Prior Board
Performance |
|
1
EnergySolutions
Unwired Planet
Liberate Technologies
BigBand Networks
InterTrust Technologies
(12%)
(22%)
(8%)
(27%)
(35%)
Engaged Capital conveniently presents data as of the date
Mr. Lockwood announces his resignation from UPIPs board,
as
opposed
to
the
date
he
actually
resigns
the
stock
price
drops 14% between those two dates
We believe our business is significantly more complex than that
of a pure IP licensing business / patent troll like Unwired Planet
Alpha
(vs.
TSR
adjusted
S&P
500)
of
negative
64%
David Lockwood was appointed to the Board on 11/03/10
Engaged Capital cites 6/11/12 as the relevant start date after the
stock had lost (65%) since his actual start date on the Board
We believe that by focusing on Lockwoods actions as CEO
rather than as a Director, Engaged Capital is misrepresenting his
track record
Alpha
(vs.
TSR
adjusted
S&P
500)
of
negative
57%
The Liberate stock price chart shown by Engaged Capital starts
neither
from
when
Mr.
Lockwood
becomes
CEO
nor
from
when
he joins as a director
We believe that Mr. Lockwoods role at Liberate was largely to
run a process to sell the companys business units
Alpha
(vs.
TSR
adjusted
S&P
500)
of
negative
44%
Engaged Capitals InterTrust stock price chart is shown for
during
Mr.
Lockwoods
time
as
CEO
again,
this
is misleading in
our opinion as it focuses on executive rather than directorial
decisions
Highlighting Mr. Lockwoods dividend strategy suggests a bias
towards corporate finance measures as opposed to a long-term
strategy that truly addresses the dominant and changing themes
in media and consumption
Alpha
(vs.
TSR
adjusted
S&P
500)
of
negative
2%
Mr. Lockwoods performance as a director at BigBand Networks
is completely omitted from Engaged Capitals materials
Picking a few experiences while excluding others, especially
those that were failures, presents a highly skewed picture of
Mr. Lockwoods track record, in our opinion
Alpha
(vs.
TSR
adjusted
S&P
500)
of
negative
38%
Actual start date:
Jun 1, 2003
Start date
cherry-
picked by
Engaged
Capital
Start date
cherry-
picked by
Engaged
Capital
Start date cherry-picked
by Engaged Capital
Actual start date:
Nov 3, 2010
Actual start date:
Oct 9, 2000
$4.00
$3.50
$3.00
$2.50
3
$2.00
$4.50
3-Nov-10
24-Jun-11
10-Feb-12
2-Oct-12
24-May-13
$1.25
$2.50
$3.75
$5.00
$6.25
$7.50
15-Jan-13
28-Jun-13
9-Dec-13
22-May-14
3-Nov-14
$1.25
$1.50
$1.75
$2.00
$2.25
$2.50
1-Jan-03
26-Sep-03
25-Jun-04
23-Mar-05
19-Dec-05
29-Jul-10
26-Nov-10
25-Mar-11
22-Jul-11
21-Nov-11
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
9-Oct-00
1-May-01
21-Nov-01
13-Jun-02
3-Jan-03
$0.75
$3.00
$5.25
$7.50
$9.75
$12.00
Total
return
performance
during
actual
Board
tenure¹
Total
return
performance
during
actual
Board
tenure
Total
return
performance
during
actual
Board
tenure²
Total
return
performance
during
actual
Board
tenure
Total
return
performance
during
actual
Board
tenure
Source: FactSet as of 4/24/15.
Note: Alpha calculated as return on stock (including reinvested dividends and adjusted for
spin-offs, splits and other corporate events) against the S&P 500 Total Return Index during Board tenure.
Start dates based upon disclosed effective dates. For companies that were acquired, end date
based upon the disclosed transaction closing date.
Remains on board following take-private.
Price returns as of June 2, 2003, to account for the holiday on June 1, 2003. Assumes any
dividends resulting from the liquidation of the company are not reinvested.
End date for David Lockwoods board tenure at Liberate Technologies based on the effective
date of the stock split conducted as part of a going private transaction, per company filings.
1
2
3
David Lockwood Total Return Performance as a Director
|
|
2
Aviat Networks
Raghu Rau
Total Return Performance as a Director
SeaChange International
(68%)
(20%)
Engaged Capital
uses an arbitrary start date for its Aviat Networks stock price
chart
one from when the stock outperforms peers, as opposed the actual dates
of Mr. Raus board tenure
Engaged
Capital
states
that
Mr.
Rau
resigned
from
the
Board
on
1/1/2015
this
is
INCORRECT
the
CORRECT
exit
date
for
Mr.
Rau,
per
company
filings,
is
1/11/2015
(the stock declined 10% between those two dates)
Alpha
(vs.
TSR
adjusted
S&P
500)
of
negative
152%
Engaged Capital lists Mr. Raus actions as CEO and Board member at
SeaChange;
however,
the
time
period
selected
for
the
stock
price
chart
does
not tie to either of those two tenures
Alpha
(vs.
TSR
adjusted
S&P
500)
of
negative
110%
Source:
FactSet as of 4/24/15.
Note: Alpha calculated as return on stock (including reinvested dividends and
adjusted for spin-offs, splits and other corporate events) against the S&P 500 Total Return Index during Board tenure.
Start dates based upon disclosed effective dates.
11-Jan-15
Start date
cherry-
picked by
Engaged
Capital
Total
return
performance
during
actual
Board
tenure
Total
return
performance
during
actual
Board
tenure
Actual start date:
Jul 15, 2010
Start date per Engaged
Capitals price chart
Actual start date:
Nov 9, 2010
9-Nov-10
9-Sep-11
10-Jul-12
10-May-13
12-Mar-14
$0.50
$1.75
$3.00
$4.25
$5.50
$6.75
1-Jan-10
17-Dec-10
2-Dec-11
16-Nov-12
1-Nov-13
20-Oct-14
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00 |
|
3
We Believe Engaged Capital Has No Real Technology Expertise
and Its Board Influence Has Created Little to No Value
The Only Three Boards Engaged
Capital Nominees Joined
Engaged Capital gained no board seats to exert influence
at any of these companies
Merely absolute return
does not represent additional
value added (alpha)
Only one of nine positions is in technology
None are in technology
Engaged Capital either destroyed or
created nominal additional value after
its nominees got on the Board
Returns
claimed
by
Engaged
Capital
1
Alpha generated since Engaged
Capital
took
Board
seats
2
None with Board influence
The directors Engaged Capital
approved, per its settlement
agreement with ANF, one of
whom was their specific nominee,
have overseen considerable
destruction of value
44%
44%
42%
38%
37%
35%
33%
15%
(4%)
(60%)
(50%)
(40%)
(20%)
(10%)
0%
10%
20%
30%
40%
50%
OPLK
TKR
AVAV
HAR
SIMG
PRXL
ESL
DST
VOLC
(30%)
1%
2%
(55%)
TRS
JMBA
ANF
Source: Engaged Capitals DFAN14A filed April 22, 2015.
Source: FactSet as of April 24, 2015.
Note:
Alpha calculated as return on stock (including reinvested dividends and adjusted for spin-offs,
splits and other corporate events) against the S&P 500 Total Return Index during Board tenure.
Start dates based upon disclosed effective dates.
1
2 |
|
ROVI
Stock 4
Our Board Has a Meaningful Economic Stake in Rovis
Future
Excluded from
Engaged Capitals
analysis
3
4
2.3x
Including
exercisable
options,
the
Boards
stake
exceeds
Engaged
Capital
including
restricted
stock
awards
and
units,
the
Boards
stake
is
2.3x
that
of
Engaged
Capital
1
2
178,557
655,819
443,180
1,277,556
550,000
Engaged Capital
Stock
Exercisable Options
RSAs/RSUs
Engaged Capital's Shares
1
RSAs vesting through July 1, 2015, for all non-executive directors and RSAs/RSUs vesting through
2018 for President, CEO & Director Tom Carson. Certain of Mr. Carsons RSAs/RSUs are also
subject to performance-based vesting.
2
Are currently exercisable or exercisable within 60 days of March 16, 2015.
3
Source:
Rovis 2015 proxy statement.
4
Source:
Engaged Capitals 2015 proxy statement.
Rovi Directors |
Exhibit 2
Perspective on the ISS & Glass Lewis Recommendations
|
Perspective on the ISS & Glass Lewis Recommendations
Rovis Board of Directors respectfully disagrees with the recommendation made by
Institutional Shareholder Services (ISS) and Glass Lewis & Co. (GL) in
connection with Rovis 2015 Annual Meeting of Stockholders, to be held on
May 13, 2015 We
believe
the
analysis
used
is
flawed,
in
large
part
because
we
do
not
believe
it
is
appropriate
to
evaluate a
company
like
Rovi
which
has
undergone
broad
repositioning
over
the
past
several
years
as
if
it
has
been
operating under ordinary circumstances
ISS
and
Glass
Lewis
are
generalists
by
nature
we
believe
their
analysis
displays
a
serious
lack
of
understanding of the highly complex nature of our business, the
rapidly-evolving secular changes and challenges affecting our end
markets, as well as our accomplishments through the transformation as a result
Rovi
stockholders
need
to
review
the
facts
carefully
because
our
investors
face
a
fundamental
decision
with respect to the Company's strategic direction and the qualifications of our
Board of Directors to lead the Company.
That
decision
requires
greater
attention
to
detail
than
ISS
and
Glass
Lewis
have
provided
Fundamentally, recommending new directors without any idea of what direction they
will take the company is risky and irresponsible
Rovis additional responses to some of the specific findings made by ISS and
Glass Lewis are included in this presentation
0 |
|
1
Lack of Strategic Plan
ISS / Glass Lewis view
Rovi view
A dissident slate not seeking
majority control does not need
a plan (ISS)
Engageds plan recommends a
strategic review and improved
corporate governance and
executive compensation
standards (GL)
This is a dangerous and naive view that does not accurately reflect the true
dynamics of a Board room that we strongly disagree with
Adding new directors with no plan while Rovi is in the midst of executing upon a
strategic plan to deliver strong shareholder growth would be very
disruptive during a crucial period of execution for the Company
Engaged Capital has not offered a plan for Rovi
Engaged Capital has had access to Rovis management team for nearly two years
more than enough time to formulate at least a few ideas or a basic
strategic vision
for
the
Company.
Yet
Engaged
Capital
has
not
articulated
a
vision
or
any
meaningful steps other than generic corporate finance strategies
Engaged Capital has not offered any ideas for how to drive growth, either through
licensing, product delivery or otherwise, nor have they stated what costs
they would be able to remove from the business
|
|
Quality
of Nominees ISS / Glass Lewis view
Rovi view
Rovis Board could benefit from
having stockholder friendly
nominees
We agree that there is value in a slate of stockholder friendly nominees. However,
we strongly believe that any slate of candidates should be compromised of
stockholder friendly QUALIFIED nominees. As part of our search process with
the assistance of a leading executive search firm, we are committed to adding
a stockholder friendly QUALIFIED nominee to augment our Board
We have taken nearly a half dozen highly qualified board candidates suggested by
existing stockholders and added them to our search process
We believe potential new directors should add value, as opposed to simply not
doing
harm.
Rovi
is
a
complex
business
at
a
critical
time
in
its
history,
and
the
addition of an unqualified director would in fact be harmful
We believe Engaged Capitals nominees are NOT qualified to serve our
stockholders
Glenn
Welling
is
a
hedge
fund
manager
with
no
known
intellectual
property
(IP)
experience
or
demonstrated
operational
ability,
much
less
in
the
technology
field
David Lockwoods qualifications are inferior and unneeded, as ISS and Glass
Lewis have agreed
Raghavendra Rau and Engaged Capitals other nominees have clear records of
value destruction at other public companies, as you can see at
http://www.rovicorp.com/content/dam/rovicorp-
ancillary/dm3/corp/proxy_apr15/050415b.pdf
2 |
|
3
ISS / Glass Lewis view
Rovi view
Rovi is perpetually in a
transition period
and growth
products have not
demonstrated results
Arguments about Rovis purported lack of return on investment, including
assertions that we continue to ask for more time without giving investors a good
reason to provide that time, ignore the empirical reality that we are
delivering new revenue today with a clear path to significant growth
acceleration. ISS
and
Glass
Lewis
ignore
the
specific¸
customer-validated
traction
we
are
seeing,
both
in
new
product
uptake
and
our
increasing
ability
to
deliver
multiple
classes
of
product under a comprehensive platform (e.g., Charter, DISH). ISS and Glass Lewis
ignore these points because they undercut their conclusion
We have pointed to numerous, proven examples of our traction in core product areas
and
licensing
all
of
which
Engaged
Capital
has
ignored
as
if
they
simply
did
not
exist. Just some of these examples include our successes with Charter, Dish,
Time Warner Cable, and America Movil
We are perplexed by the observation that it is possible to invest oneself into
bankruptcy
if
the
answer
is
always
the
cycle
is
going
to
take
longer.
This
concern
does not apply to Rovi
With EBITDA margins of 40+%, there is no relevant discussion in this situation
about investing oneself into bankruptcy
In this public contest, there has been a lot of noise from Engaged Capital about
our purported lack of return on investment in the form of revenue, including
repeated assertions that we continue to ask for more time without giving our
investors a good reason to provide that time
These
arguments
and
almost
all
of
those
that
address
our
levels
of
spend
in
the
context
of
our
growth
conveniently
ignore
the
empirical
reality
that
we
are
delivering
new
revenue
today
with
a
clear
path
to
significant
growth
acceleration
Capital Allocation |
|
4
ISS / Glass Lewis view
Rovi view
Capital Allocation (continued)
To
the
extent
that
change
in
Rovis
strategy
is
appropriate,
Rovis
Board
and
management have discussed Engaged Capitals ideas with Engaged,
thoughtfully considered them along with suggestions from other stockholders,
and
taken
action
with
respect
to
the
changes
that
we
believe
are
in
Rovis
best
interest
We would never seek to shut-out credible opinions about how we can improve our
trajectory; however, we will continue to strongly resist any transfer of
power from those who understand our markets and customers to those who
simply do not We welcome feedback from all of our stockholders, and have
participated in what we believe has been constructive dialogue with Engaged
from the onset. In fact, weve made
changes
to
capital
allocation,
share
buybacks
and
executive
compensation
following suggestions from our stockholders
Rovi has been unreceptive to
stockholder suggestions on
capital allocation strategy |
|
5
Capital Allocation (continued)
Source:
FactSet.
1
High based on closing price as of 01/18/2011.
Rovi's product investments
have not yielded the desired
return for stockholders
Some of the failed projects may
be
legacy
issues
from
the
prior
management
team
but
they
are the legacy of this same
board
ISS / Glass Lewis draws conclusions about Rovis performance based on
calendar year time periods that disregard the substantial changes Rovi made to
its capital allocation strategies following the Sonic acquisition. The
fact is that Rovi coming out of 2014 was a completely different company than
the Rovi that entered 2010, 2011 or 2012
The
failed
projects
ISS
and
Glass
Lewis
cite
primarily
relate
to
the
single
Sonic
acquisition failure. Rovis Board has acknowledged that Sonic was a mistake
and the Board has dramatically changed the companys strategy,
structure and product approach as a result
If it is appropriate to evaluate our Board on the basis of the Sonic period, equal
weight must be given to the latter period reflecting the Boards
revised strategy our Board has implemented
It is common knowledge that acquisitions are difficult and very challenging.
Holding a Board of Directors to a zero defect policy, and recommending
their replacement based on a single failed transaction, is insanity based
on a complete void of understanding of the real-world risks in
acquisitions and the challenges inherent in them.
The
Rovi
Board
members
that
Engaged
Capital
seeks
to
replace
(and
that
ISS and Glass Lewis have effectively recommended for the replacement of) are the
same directors that saw the merits of combining Macrovision Corporation and
Gemstar TV-Guide International in 2007. Rovis stock moved from a
low of $16.65 at deal
close
to
a
high
of
$68.85
following
that
transaction¹
ISS / Glass Lewis view
Rovi view |
|
6
Operating Performance
Rovis overall revenue and core
revenue growth has lagged
despite substantial investment
Criticizing Rovis recent revenue growth disregards key aspects of our
business Our product business is an increasingly important part of our
connected platform Engaged Capitals failure to understand our product
cycles should be concerning to stockholders as it demonstrates a lack
of understanding of the industry in which we operate. ISS and Glass Lewis
should also be held to a higher standard of that understanding in their
analysis ISS / Glass Lewis view
Rovi view
As
many
of
our
stockholders
and
Wall
Street
Analysts
understand,
we
expect
our
Big
4
license renewals to be a significant driver of revenue growth, and they are all
tied to renewal dates later this year and next
Product cycles in our industry are 18-24 months, and even longer when
considering deployment to scale timelines.
As a result, it is patently unreasonable to rely upon the simplistic view
that despite the companys heavy investments, the product
segment has not seen the kind of ramp-up that shareholders may have
expected Both the absolute revenue and share of revenue from our
product business has been increasing, and its strong profitability provides
incremental margin to our IP business Our product revenues are an
increasingly important piece of our business; with product revenues
increasing to 51% of revenues in Q115 from 45% in 2013. This is clear
evidence of our past investments in both IP and products producing results
despite the decline in our analog business revenues from $129 million in 2010 to
$30 million in 2014. Our product investment has supported core revenue that
is up ~$100 million since 2010, to offset the decline from our analog
business The significant synergies that exist between our product and
licensing businesses that we have highlighted before, as well as the
continued validation from marquee customers who utilize both our products
and IP, we believe, contradicts ISS and Glass Lewis' assertion of a
"failed" product investment strategy |
|
7
Operating Performance (continued)
Rovis high margins are due to
its IP business
Rather, Rovis margin outperformance was driven by:
Rovis
superior
margin
profile
cannot
be
explained
away
by
virtue
of
our
IP
business
ISS / Glass Lewis view
Rovi view
Rovis margins are high even compared to pure IP companies, or companies for
whom a vast majority of revenue is comprised by IP
Some
of
the
benchmarking
peers
included
pure
IP
companies,
which
have
an
average
CY2014 EBITDA margin of 40%, lower than Rovis 43% margin
Importantly, Rovis margin performance has exceeded that of these peers
despite both (i) our transformation and the reinvestment it has required,
and (ii) the existence of our large and growing product business
Synergies among our various businesses that allow us to achieve revenue across
various Rovi properties with the same dollar of spend
Continued reduction in our cost base, including rationalization of
non-strategic assets, aligning our resources more carefully against our
opportunities, and revised executive compensation practices
|
|
8
Operating Performance (continued)
The company underperformed
selected peers and the S&P 500
in ROA, ROE, revenue growth,
and earnings per share growth
measures
Rovi has experienced a high
degree of volatility in its
earnings
The
ISS
/
Glass
Lewis
analysis
disregards
our
stated
strategy
of
reinvestment
for
growth and results in a misleading view of Rovis performance
Since
2012,
and
despite
the
comprehensive
rebuilding
of
the
business,
our
cumulative net loss before extraordinary items was only $12.3 million or 0.8% of
cumulative revenue over the same period
In
2014
our
Non-GAAP
profit
margin
was
30%,
far
above
those
of
IP
and
DaaS
peers
of 19% and 2015 proxy peers of 9%
Our net income
(excluding
extraordinary
items)
has
NOT
displayed
remarkable
volatility
ISS / Glass Lewis view
Rovi view
Rovis net income margin, on a non-GAAP basis, changed from 30% in 2012
to 31% in 2013 and 30% in 2014, all while the Company was investing in
strategic growth areas. These movements are NOT remarkable
volatility Companies like Rovi that serve highly fluid end-markets
are less likely to exhibit highly consistent net income from one year to
the next than companies in less dynamic sectors with established,
long-term margin expansion structures and more end-market stability
may be expected to have Companies
that
have
recently
undergone
(or
that
are
in
the
midst
of)
a
transformation
on the scale of Rovis are, we believe, very unlikely to demonstrate linear
net income performance. Transformations are focused on repositioning for
the longer-term rather than managing to immediate-term net income
results We have spent the last several years investing in strategic growth
areas and preparing for our Big 4 licensing renewals which have required
considerable effort We
expect
the
Big
4
renewals
to
contribute
significantly
and
positively
to
all
of these metrics
As
a
result
of
our
investments,
we
have
a
clear
line
of
sight
to
achieving
sustainable,
profitable
growth
provided
that
our
strategy
is
not
derailed
by
outsiders
who
have
not owned our shares until recently
We believe it is inappropriate to focus on year-on-year EPS growth due to
the outsized
and
misleading
impact
of
small
numbers
on
that
calculation |
|
9
The
Big
4
Renewals
ISS / Glass Lewis view
Rovi view
Investors
were
surprised
at
the success of the contract
renewal with Charter and this
signifies that investors are not
confident
in
Rovis
ability
to
renew the other big
contracts
(ISS)
We were perplexed that ISS would attribute our stock gain following the Charter
announcement
to
surprise
and
believe
this
betrays
a
lack
of
understanding
regarding our business
Rovi stock regularly moves upon perceived indicators with respect to our IP
licensing business, and it was no surprise to us that investors would
recognize the significance of
an
agreement
with
a
sophisticated
service
provider
validating
the
value
of
our
IP
and products.
Simply,
we
view
the
8.6%
increase
in
our
stock
price
on
April
20
to
be
clear
evidence
that
our
stockholders
have
material
upside
potential
before
them
if
we
continue
to
execute
This
position
is
nonsensical.
The
ISS
logic
would
have
you
believe
that
any
stock
price increase on good news signifies lack of investor confidence in the future
prior to the increase, because the stock price prior to the increase is
depressed. As
opposed to investors seeing positive proof points of strategy and an increased
valuation
of
the
Company
associated
with
those
proof
points.
We
believe
this
is
another example of ISS and Glass Lewis reaching a conclusion before writing
their report, and then manufacturing reasons to support their conclusion.
DONT VOTE BASED ON THESE FLAWED CONCLUSIONS
|
|
10
Corporate Governance
Rovi adjusted its executive
compensation structure only
after facing proxy contests from
dissidents
Rovi view
Our historical executive compensation plan was designed to attract and retain
talent
during
a
critical
time
in
our
business
transformation.
We
sought
our
stockholders
input and made fundamental changes to our plan before Engaged
Capitals campaign
Overall Rovi has a shareholder friendly governance profile with low risk scores on
Board and Shareholder Rights under ISSs Governance QuickScore
Our 2012 and 2013 compensation plans were designed to attract and retain talent
during a period of transition for the Company, and thus our performance
based awards lacked a long-term element
During
2013
and
2014
and
before
Engaged
Capitals
campaign,
we
sought
input
from our stockholders, including Engaged Capital, and made significant changes to
our executive compensation plan. Now with our strategy set, we have
introduced real long-term elements to our compensation plan. ln its
report last year dated April 11, 2014, ISS noted: The company
demonstrated responsiveness by engaging with shareholders and making a
number of changes to its compensation programs. Rovi proactively
changed its peer group well before Engaged Capital launched this proxy
fight. Notably,
ISS
and
Glass
Lewis
both
support
our
current
say
on
pay
proposal,
citing
the
positive
changes
Rovi
has
made
in
addressing
concerns
of
stockholders
and proxy advisors in recent years, with ISS noting The company made a
number of improvements to its pay program, including improving disclosure
of performance- target setting, eliminating discretionary bonuses,
making positive modifications to future performance awards, removing
several outsized peers from its peer group and discontinuing benchmarking
elements of pay above the market median. These actions mitigate several
concerns raised by both the dissident and other shareholders.
ISS / Glass Lewis view |
|
11
Total Stockholder Return (TSR)
Rovi has underperformed its
selected peers and indexes for
1-, 3-
and 5-year periods and
since the Sonic acquisition
through March 11, 2015
Note:
Market data as of 3/11/2015, consistent with ISS and GL analysis.
These time periods present a distorted view in this case. Investors should
assess Rovis performance following the implementation of the
Companys strategy shift The calendar period do not account for the
dramatic and decisive changes Rovis Board and leadership have
implemented Since
these
changes
were
implemented
beginning
in
July
2012,
our
stock
price
and
trading multiple have improved markedly and well in excess of the indices and peer
groups used by ISS and Glass Lewis. Specifically, Rovis Total
Shareholder Return (TSR) has outperformed peers and indices referenced by
ISS and Glass Lewis by an average of 68%, while Rovis earnings
multiple has expanded by nearly 200% more than that of the 2015 proxy peers
as well as the IP and DaaS peers. ISS and Glass Lewis ignore those points
because they undercut their conclusion Wall
Street
analyst
price
targets,
based
upon
our
articulated
strategy
before
Engaged
Capital
began
its
campaign,
validate
a
belief
in
further
stock
price
appreciation
Peer group and market indices comparisons do not tell the whole story here
Rovis peer groups include a broad variety of companies that face
dramatically different circumstances from one another and from Rovi
The broad market averages relied on by ISS and Glass Lewis may be valuable in
assessing large sets of data and industries, but they ignore unique
characteristics of individual companies and can be particularly misleading
for assessing the performance of a company like Rovi that has undergone
significant changes in a relatively short time period
These factors are especially true in the technology sector, an industry in which
companies and public markets change rapidly and unpredictably, and
companies financial profiles vary widely
Rovis Board has taken responsibility for the Sonic acquisition and readily
acknowledges that the acquisition of Sonic Solutions was not a good deal
for Rovi
and
the
Board
has
subsequently
rebuilt
Rovi
from
the
ground
up
ISS / Glass Lewis view
Rovi view |
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