Indaba Issues Letter to ON24’s Board of Directors Regarding the Need for a Meaningful Capital Return Program and Stronger Corporate Governance
February 08 2023 - 7:00AM
Business Wire
Encourages the Company to Establish a
Specific Plan for Returning At Least $150 Million to Shareholders,
Which It Can Comfortably Afford Given Its Overcapitalized Balance
Sheet
Urges the Company to Appoint an Indaba
Designee as a Director and Modernize Governance, Including by
De-Staggering the Board
Indaba Capital Management L.P. (together with its affiliates,
“Indaba” or “we”), which is the second largest shareholder of ON24,
Inc. (NYSE: ONTF) (“ON24” or the “Company”) with an ownership
interest of nearly 9% of the Company’s outstanding shares, today
issued an open letter to the Company’s Board of Directors (the
“Board”).
Members of the Board,
As you know, Indaba is ON24’s second largest shareholder. We are
strong proponents of ON24 enacting a meaningful capital return
program, a plan to achieve profitability and corporate governance
enhancements. We believe these actions are necessary in light of
the Company’s approximately 80% share price decline over the past
two years.
Unfortunately, the need for change at ON24 is evidenced by much
more than just objectively terrible shareholder returns. ON24 has a
classified Board, long serving directors, no shareholder
representative in the boardroom and a history of excessive spending
and questionable capital allocation under Co-Founder and Chief
Executive Officer Sharat Sharan. These apparent issues are all the
more concerning when taking into account that ON24 had a hoard of
cash, cash equivalents and marketable securities on its balance
sheet as of the end of its last reporting period.
As the Board has overseen billions of dollars in value erosion
over the past 24 months, it has not offset share price declines by
meaningfully returning excess capital on the balance sheet to
shareholders. This leads us to fear that the Board may allow Mr.
Sharan to sustain elevated expenses and squander capital on
questionable acquisitions. We believe the Board should address
these concerns – which we suspect are shared by many other
shareholders – by taking the following steps:
- Returning at least $150 million in capital to
shareholders. There is no plausible rationale for ON24 keeping
so much cash on its balance sheet, especially when the Company has
not disclosed a clear and credible plan for investing that capital
and producing strong returns for shareholders. Shareholders should
not have to bear the risk of entrusting Mr. Sharan and his
boardroom allies to steward their cash. That is why we believe the
best path forward is returning at least $150 million to
shareholders, while still leaving a significant amount of capital
on hand for the Company’s operations and to fund prospective
tuck-in acquisitions.
- Returning capital in a credible and confidence-inspiring
manner. We believe the Board needs to be thoughtful about the
best and most tax-efficient ways to return capital to shareholders.
Ideally, ON24 should draw on a combination of a special dividend,
accelerated share repurchase (“ASR”) program, 10b5-1 share
repurchase plan and provide a specific plan to shareholders. We
believe a $75 million dividend, a $50 million ASR program and a $25
million 10b5-1 plan is appropriate and would be well received by
shareholders.
- Improving corporate governance. If the Board wants to
regain shareholder trust after overseeing massive value
destruction, we believe it should appoint an Indaba designee as a
director, de-stagger its director classes and set up a committee of
independent directors to oversee capital allocation
initiatives.
At this point, we hope the Board simply acts in shareholders’
best interests rather than seeming to prioritize the interests of
ON24’s Co-Founder and Board. The time for debate is over. The time
for transparent action is here.
Sincerely,
Derek Schrier Managing Partner Indaba Capital Management
L.P.
***
About Indaba Capital
Indaba was founded in 2010 to invest in corporate equity and
debt. It is based in San Francisco. Learn more at
www.IndabaCapital.com.
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Longacre Square Partners Greg Marose / Charlotte Kiaie,
646-386-0091 gmarose@longacresquare.com /
ckiaie@longacresquare.com
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