- Engaged Capital sets the record
straight and offers a better alternative to continued value
destruction
- Rovi Board is reactive, long-tenured,
entrenched, misaligned with shareholders, and refuses to take
responsibility for failed strategies they put in place
- Vote the WHITE Proxy Card to elect David Lockwood,
Raghavendra Rau, and Glenn Welling and significantly enhance the
value of your investment in Rovi
Engaged Capital, LLC (together with its affiliates, “Engaged
Capital” or “we”), an investment firm specializing in small and
mid-cap North American equities and beneficial owner of 550,000
shares of the common stock of Rovi Corporation (“Rovi” or the
“Company”) (Nasdaq: ROVI), today sent a letter to shareholders in
connection with its campaign to elect three highly-qualified
directors, David Lockwood, Raghavendra Rau, and Glenn Welling, at
the May 13, 2015 Annual Meeting of Rovi.
Rovi shareholders are invited to visit
http://www.engagedcapital.com/vcr/home.html to review Engaged
Capital’s case for change at Rovi, and to review its full
presentation, letters, and proxy material prepared for fellow Rovi
shareholders.
The full text of the letter follows:
May 6, 2015
Dear Fellow Rovi Shareholders,
As you know, Engaged Capital, LLC (together with its affiliates,
“Engaged Capital” or “we”) is a long-term shareholder of Rovi
Corporation (“Rovi” or the “Company”). We are asking for your
vote to improve Rovi’s Board of Directors (the “Board”) by
replacing three long-tenured incumbent directors, Chairman Andrew
Ludwick, James Meyer, and James O’Shaughnessy, with our three
director nominees – David Lockwood, Raghavendra Rau, and Glenn
Welling – who we believe are superior and better qualified
candidates and have a stronger commitment to enhancing value for
all Rovi shareholders.
The time has come for shareholders to send a clear and
unambiguous message for change. Please vote the enclosed
WHITE proxy card today to elect
all three of Engaged Capital’s highly
qualified nominees.
If you require assistance voting your proxy, please contact
our proxy solicitors Morrow & Co., LLC, toll- free at (800)
662-5200, call direct at (203) 658-9400 or email:
engaged@morrowco.com
SETTING THE RECORD STRAIGHT
Over the past month, we have demonstrated why change is urgently
needed at Rovi. We have presented factual evidence of Rovi’s
continued financial and market underperformance. Unfortunately, the
Company’s directors remain in denial, insisting that they know best
and that the rest of the world has it wrong. The Board would have
shareholders believe Engaged Capital is wrong and our call for
change is unwarranted, despite the overwhelming proof to the
contrary and the fact that all three directors we are seeking to
replace received less than 75% support from shareholders at last
year’s annual meeting - while running unopposed. The Board would also have shareholders
believe that both leading proxy advisory firms, ISS and Glass
Lewis, are wrong for recommending shareholders elect our nominees
at the Annual Meeting. Finally, the Board would have shareholders
believe investors are wrong, despite this Board overseeing dramatic
stock underperformance that indicates shareholders have serious
concerns about the Board’s current plan.
We find it extraordinary that the incumbent, long-tenured, and
misaligned Board, after presiding over a substantial destruction of
value, rather than show contrition has chosen to waste shareholder
capital to fight shareholders. This Board’s refusal to take
responsibility and its continued insistence on maintaining the
status quo highlights the urgent need for new perspectives in the
boardroom.
With very few facts to support its case, the incumbent Board has
attempted to defend its poor track record by distorting reality
with “cherry picked” data and making hollow promises of a brighter
future. Unable to offer tangible evidence that its plan is working,
the Board has resorted to juvenile attacks, lashing out at all
dissenters, first Engaged Capital and our nominees, and more
recently, turning its venom on both respected proxy advisors, ISS
and Glass Lewis. The level of desperation the incumbent directors
have displayed in trying to maintain their positions reinforces why
it is so urgent and critically important that shareholders should
vote to meaningfully improve the Board and elect all three of
Engaged Capital’s nominees.
ENGAGED CAPITAL’S HIGHLY-QUALIFIED, INDEPENDENT AND
ACCOMPLISHED CANDIDATES
We believe that shareholders should support all three of Engaged Capital’s nominees because
they are extremely qualified, accomplished businessmen who bring
complementary skills and relevant industry experience to a Board
that is sorely lacking in a number of areas. Each is truly
independent and would bring a fresh, shareholder-focused
perspective into the boardroom.
Mr. Rau would bring deep experience and industry
relationships to Rovi’s Board. For approximately three years Mr.
Rau served as CEO of SeaChange, a company which operates in the
same ecosystem as Rovi. This experience would be extremely valuable
in the boardroom as SeaChange services Rovi’s same customer base,
has partnered with Rovi to deliver products, and was even rumored
to be an acquisition candidate for Rovi in late 2013. Mr. Rau
developed multiple new software solutions, which were sold into
Rovi’s Service Provider customer base, including large clients such
as Comcast and Liberty Global. During his tenure, Mr. Rau also
divested unprofitable non-core businesses, materially reduced
operating expenses, and won a major IP litigation case. Mr. Rau
also has significant experience with IP businesses, having managed
a portfolio of thousands of patents while a senior executive at
Motorola.
While serving as CEO, SeaChange’s stock price peaked at
approximately $15, over an 80% increase from when Mr. Rau accepted
the CEO position. Recent underperformance was driven by customer
delays outside of the Company’s control, however sell-side analysts
agree SeaChange is well positioned due to the products developed
under Mr. Rau’s leadership and 80% of analysts maintain “buy”
ratings on SeaChange’s stock. In previous roles as a director,
Aviat Networks materially outperformed peers during Mr. Rau’s
tenure and MicroTune was sold for a sizable premium only four
months after Mr. Rau joined the board.
Mr. Lockwood has extensive experience managing IP
businesses and successfully selling products into Rovi’s targeted
Service Provider customer base. Mr. Lockwood not only has directly
relevant industry experience, but also has a long track record of
value creation. As CEO of EnergySolutions, Mr. Lockwood
restructured the business before taking the company private at a
price over 150% higher than when he assumed his role as CEO. As CEO
of Liberate Technologies, Mr. Lockwood oversaw the development of
new products, signed licensing deals with MSOs, and developed
strong relationships with key executives at large Service
Providers, including many of Rovi’s clients. During his tenure as
CEO, Mr. Lockwood returned over $240 million to shareholders, sold
a software business to Comcast and Cox, and shareholders received
more than 2x their money in dividends, and share price
appreciation. As CEO of Intertust Technologies, Mr. Lockwood
restructured the company and signed licensing deals with major
electronics customers. During his tenure as CEO, shareholders
benefited greatly as Intertrust was sold to a group led by Sony and
Phillips for $4.25, approximately 4x the ~$1.00 share price when
Mr. Lockwood became CEO.
Rovi’s Board has repeatedly misrepresented Mr. Lockwood’s
involvement at Unwired Planet in an attempt to discredit him. Here
are the facts: Unwired Planet announced its transaction with
Ericsson on January 10, 2013. Mr.
Lockwood did not join the board until January
16, 2013, which is after the transaction was already
announced. It is completely ridiculous
for Rovi’s Board to somehow hold Mr. Lockwood responsible for a
transaction that occurred before he even joined the company.
However the factual errors are not surprising given that Rovi’s
Board obtained its criticism of Unwired Planet from a small online
blog with 41 twitter followers, hardly a credible source. Notably,
after joining the Board and with the Ericsson transaction already
in place, Mr. Lockwood helped to secure a $100 million licensing
deal with Lenovo, which was the largest IP licensing deal in the
company’s history. This was a critical event, as Unwired Planet had
essentially no revenue at that time. Regardless, when Mr. Lockwood
joined the board, Unwired Planet’s stock price was $1.80 and when
he announced his resignation from the board shares were $1.70, only
a meager ~6% decline. Whatever board level decisions may have
negatively impacted the company subsequent to Mr. Lockwood’s
resignation are irrelevant. We find it reprehensible that Rovi’s
Board has knowingly attempted to discredit Mr. Lockwood based on a
transaction that occurred BEFORE he joined the board and price
performance that occurred AFTER
his announced resignation.
Rovi has also attacked Mr. Welling and Engaged Capital’s track
record. Since inception, Engaged Capital has delivered an ~14%
annualized return for investors, including an over 94% average IRR
and over 32% average ROI on exited “core” positions. Consistent
with our strategy, we work constructively with our portfolio
companies to create value for shareholders. The results speak for
themselves. In almost all situations, we have been able to
successfully work together with management teams and boards to
deliver shareholder value without needing to go on the board
ourselves. It is important to note that Engaged Capital only sought
to add shareholder representatives to the Rovi Board after it
became clear that the long-tenured incumbent Board was intransigent
and lacked the skills, experience, sophistication, and track record
required to reverse the Company’s value destructive course.
It is absurd for Rovi to claim our record on public boards is
“clear and troubling” based on the short term results at TriMas and
Jamba. This is just another example of Rovi “cherry picking” data
in an attempt to fool shareholders. We placed an independent
director on the board of TriMas less than three months ago and
agreed to join the board of Jamba four months ago. With such a
limited timeframe it is impossible to properly evaluate these
engagements. However, we would make two important points regarding
our involvement at both TriMas and Jamba. First, as evidence of the
relationships we seek to build with our portfolio companies,
investors should note that the independent director we added to the
board of TriMas was the CFO of one of our former portfolio
companies. His addition to the board was negotiated privately and
in a very constructive manner. Second, we were invited to join the
Board at Jamba and since our public involvement began at Jamba with
our July 23, 2014 13D filing, the stock price has increased over
30% largely due to changes in strategy advocated by Engaged
Capital. Two points should be clear: one, that Engaged Capital has
an excellent track record of creating value constructively for
shareholders and two, that the Board is only fabricating lies to
deflect attention away from their own pitiful track record.
We urge you to vote the enclosed WHITE proxy card today to elect
all three of Engaged Capital’s
highly qualified nominees — David Lockwood, Raghavendra Rau, and
Glenn Welling — who will seek to drive improvements at Rovi for the
benefit of all shareholders.
Collectively, our nominees are highly complementary and will bring
exceptional skills and experience to the Rovi Board, including:
- Experience in the online video and
Over-the-Top (OTT) industries;
- Close relationships with key C-level
personnel at large Tier 1 and Tier 2 Service Providers;
- Experience operating software
companies;
- Successful track records in building
next generation software products accepted by the largest Service
Providers;
- Significant experience with
Intellectual Property Management;
- Track records of growing revenue and
driving cost efficiencies;
- Significant experience developing
strategies that increase shareholder value, including with respect
to capital allocation policies; and
- Significant expertise in improving
governance structures including developing executive compensation
plans that align pay with performance.
THE TRACK RECORD THAT MATTERS
Shareholders must not lose sight of what really matters – the
track record of Rovi’s incumbent directors while at Rovi. The Board
can resort to defensive claims about the changes they have adopted
and promise eventual success in the future, but in the end, share
price performance is the ultimate reality check and the best
indicator of investors’ lack of trust in current leadership. The
indisputable fact is that under the current Board, Rovi
shareholders have suffered greatly. In our view, it is inexcusable
for the Board to continue to ignore this simple truth and to
repeatedly insult the intelligence of investors by offering a
flagrantly “cherry picked” response. It is finally time for this
Board to be held accountable.
1 mo. 3 mo. 6 mo.
9 mo. 12 mo. ROVI Total Return (1%)
(25%) (15%) (21%) (24%)
ROVI Relative Return
vs:
Russell 2000 2% (26%) (19%) (30%) (32%) S&P 400 (1%)
(28%) (23%) (34%) (37%) S&P 400 Technology Sector (2%) (31%)
(28%) (37%) (44%) S&P 400 Software Sector (4%) (32%) (30%)
(46%) (53%) Proxy Peers (1%) (30%) (21%) (38%) (43%)
New CEOAnnounced
2 Yr 3 Yr 4 Yr
5 Yr ROVI Total Return (24%) (35%) (28%) (64%) (53%)
ROVI Relative Return
vs:
Russell 2000 (51%) (88%) (98%) (110%) (127%) S&P 400
(58%) (100%) (117%) (127%) (157%) S&P 400 Technology Sector
(62%) (86%) (103%) (105%) (142%) S&P 400 Software Sector (65%)
(92%) (115%) (130%) (173%) Proxy Peers (66%) (79%) (81%) (83%)
(130%)
RECENT CHANGES ARE REACTIVE HALF-MEASURES BY A DESPERATE
BOARD
Recent changes implemented by the Board have been reactive
rather than proactive. Rovi’s newest director, Steven Lucas, was
added to the Board less than two
months before the Annual Meeting and in the midst of a
contested election. The Board’s recent changes to director
compensation came less than two weeks
prior to the Annual Meeting and only after Engaged Capital publicly
attacked the egregious compensation the Board has been paying
itself. Even changes to Rovi’s executive compensation program were
only made after three years of declining
support for “say-on-pay” and a failed “say-on-pay” vote last year. Clearly, these
are last minute, reactive half-measures by an entrenched Board
desperately trying to weather a proxy contest rather than proactive
corporate governance improvements by a board genuinely aligned with
shareholders.
THE TIME FOR CHANGE AT ROVI IS NOW
We are confident there is significant value to be realized at
Rovi. However, we are concerned that the current Board has
proven either unwilling or unable to take the appropriate actions
to address the Company’s perennial underperformance. The simple
truth is that under the oversight of the current Board, the Company
has suffered both poor financial and stock price performance. Rovi
shareholders have suffered a nearly 50%
decline in share price over the past five years and
the current Board has approved the investment
of over $1.3 billion of shareholders’ capital since 2011, which, to
date, has generated zero revenue growth. It is time to
reconstitute this Board to ensure the necessary steps are taken to
maximize shareholder value.
In its most recent letter to shareholders, the incumbent
directors made a desperate plea for more time, begging shareholders
“Why now? Why not wait for another year?” Our answer is simple:
given the past failings under the incumbent Board, we do not
believe shareholders can expect this Board to deliver improved
results next year or even the year after. Andrew Ludwick, a
networking executive who has been retired since the 1990’s, has
served as your Company’s Chairman since
2008. James Meyer, the CEO of a radio company, has served on
the Board for 18 years. These
directors have had ample time and opportunity to prove themselves
and they have failed shareholders miserably time and time
again.
Further, we believe the Company’s current investment strategy
necessitates immediate Board reconstitution. At current spending
levels, by 2017 Rovi will have invested over
$600 million into its product growth strategy. By the
Board’s own admission, the Company does not anticipate this
investment to lead to material product revenue growth until 2017. However, shareholders should be wary
when considering the Board’s latest promises for future growth, as
these same incumbent directors have approved hundreds of millions
of dollars of investment in products that were promoted as growth
drivers but later turned out to be disappointing failures. As noted
by ISS and Glass Lewis, the Board continues to shirk
responsibility, acting as if the prior management team were the
sole party responsible for all past failures. This is despite the
fact that well after the Company’s “transformation” began,
significant capital was deployed into failed growth products and
product development issues persisted. Recent issues such as the
need to replace Rovi’s internal connected guide operations and the
~50% write-down of the contingent consideration from the Veveo
acquisition further reinforce the fact that shareholders should
take little comfort in a strategic review conducted by the
incumbent Board. We believe new directors with relevant industry
expertise and fresh perspectives are necessary to assess this spend
and protect shareholders’ capital. Shareholders cannot afford the
risk of waiting to find out in two years that the Board’s latest
efforts resulted in yet another strategic strikeout. Change is
needed at Rovi.
BOTH ISS AND GLASS LEWIS RECOMMEND THAT ROVI SHAREHOLDERS
VOTE FOR CHANGE ON ENGAGED CAPITAL’S WHITE PROXY
The leading proxy advisory firms have both recommended that Rovi
shareholders vote on Engaged Capital’s WHITE proxy card. We urge you to support
our campaign to improve Rovi and vote the enclosed WHITE proxy card today to elect
all three of Engaged Capital’s
highly qualified director candidates who will bring a fresh,
shareholder-focused perspective to the Board and will seek to drive
improvements at Rovi for the benefit of all shareholders. Messrs. Lockwood, Rau,
and Welling possess complementary skillsets and we are confident
together they will prove extremely valuable in the boardroom.
VOTE FOR THE MOST QUALIFIED SLATE OF DIRECTORS TO RESTORE AND
ENHANCE THE VALUE OF YOUR ROVI INVESTMENT
The election of directors will take place at Rovi’s Annual
Meeting of shareholders on May 13. This meeting will provide an
important opportunity for you to vote for new, independent
directors and a better future for Rovi.
Remember, the Board should not decide on our directors, they
must be elected by shareholders. This year you have a real choice,
and can vote for new directors nominated by Engaged Capital who are
independent and aligned with your interests. Vote the enclosed
WHITE proxy card to protect your
investment.
PLEASE SIGN, DATE, AND MAIL THE ENCLOSED WHITE PROXY CARD TODAY
We look forward to your support at the 2015 Annual Meeting.
Thank you for your support, /s/ Glenn W. Welling
Glenn W. Welling Engaged Capital, LLC
If you have any questions, or require assistance with your
vote, please contact Morrow & Co., LLC, toll- free at (800)
662-5200, call direct at (203) 658-9400 or email: engaged@morrowco.com
About Engaged Capital:
Engaged Capital, LLC (“Engaged Capital”) was established in 2012
by a group of professionals with significant experience in activist
investing in North America and was seeded by Grosvenor Capital
Management, L.P., one of the oldest and largest global alternative
investment managers. Engaged Capital is a limited liability company
owned by its principals and formed to create long-term shareholder
value by bringing an owner’s perspective to the managements and
boards of undervalued public companies. Engaged Capital manages
both a long-only and long/short North American equity fund. Engaged
Capital’s efforts and resources are dedicated to a single
investment style, “Constructive Activism” with a focus on
delivering superior, long-term, risk-adjusted returns for
investors. Engaged Capital is based in Newport Beach,
California.
Shareholder Contact:Morrow & Co., LLCTom Ball,
203-658-9400tomball@morrowco.comorJohn Ferguson,
203-658-9400jferguson@morrowco.comorMedia
Contact:Bayfield Strategy, Inc.Riyaz Lalani,
416-907-9365rlalani@bayfieldstrategy.com
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