NEW YORK, Feb. 7, 2020 /PRNewswire/ -- AREX Capital
Management, LP ("AREX"), which manages funds that collectively own
7.5% of the common stock of ZAGG, Inc. (NASDAQ: ZAGG) ("ZAGG"
or the "Company") today released a letter delivered to the Board of
Directors of ZAGG in which AREX demanded that ZAGG's Board of
Directors provide shareholders with an update on the strategic
alternatives process the Company announced six months ago. AREX
emphasized that a sale of ZAGG is the best outcome for all
shareholders on a risk-adjusted basis. AREX also expressed concern
that the Board may be rejecting bids in hopes of achieving an
unrealistic sale price.
The full text of the letter follows:
February 5, 2020
The Board of Directors
ZAGG, Inc.
910 West Legacy Center Way, Suite 500
Midvale, UT 84047
Dear Members of the Board of Directors:
We appreciated CEO Chris Ahern
and CFO Taylor Smith taking the time
to speak with us a few weeks ago. AREX Capital Management, LP
("AREX" or "we") is one of ZAGG, Inc.'s ("ZAGG" or the "Company")
largest shareholders, and we now wish to address the full Board of
Directors (the "Board") more formally.
The market is waiting. It has been
six months since ZAGG announced the Board's review of
strategic alternatives. We are surprised by how long
this process has taken, and we hope that the delay is due to
bidders' requests for final confirmation of the Company's year-end
results. However, we remain concerned that the Board may be
deterring or rejecting bona fide offers to acquire ZAGG in
hopes of achieving an unrealistic sale price. We further believe
that such action would be a clear failure by the Board to do what
is in the best interests of shareholders. Accordingly, we
feel it is essential to reiterate our
position.
A sale of ZAGG is the best outcome for all shareholders on a
risk-adjusted basis. We expect that ZAGG's
business performed well in the fourth quarter, and we believe that
the market shares this view given favorable handset
sales data and multiple sell-side analysts providing positive
commentary for investors. Despite these positive indications
and the market's general optimism about the potential for the
upcoming 5G rollout, ZAGG's shares continue to languish. If
the Board fails to act, one can only infer what will happen to
ZAGG's shares in softer periods for the handset market or the
overall economy.
The stark reality is that ZAGG has been consistently unable to
garner a strong multiple or sustained enthusiasm from investors for
many years. ZAGG has no evident cost of capital advantage
from being public. Yet, as a public company, ZAGG is forced
to endure both material public-company costs and the scrutiny of
quarterly reporting, which is a bad match for the cadence of its
business. We believe that the market has been clear in
communicating its view that ZAGG is not well-suited to be a
publicly traded company. ZAGG's full and fair value can
best, and likely only, be realized through a sale to a financial or
strategic acquirer that can value ZAGG based on its cash flow
generation.
Any optimistic view of ZAGG's future must be balanced against
the Company's repeated failure to deliver on its forecasts and the
many risks that are inherent to its business. It is worth
remembering that management's projections have proven overly rosy
twice in the past 14 months alone.[1],[2] While
rehashing more of the past is not our intention today, we do not
see how the Board could credibly rely on the output of a
highly subjective discounted cash flow model or
multiples-based analysis that would justify staying public over the
real-world result of a robust, publicly-announced sale process with
multiple bidders.
An acquirer will factor in their own assumptions, including the
impact of 5G on overall handset volumes, when assessing the
Company's prospects and value. It would be highly unreasonable
for this Board, which owns a de minimis amount of stock, to
reject the well-informed bids of acquirers who can deliver
immediate, compelling, fair value for shareholders in favor of
unfounded optimism based on management projections, which have
proven to be highly unreliable in the past.
We hope that the successful conclusion of the
strategic alternatives process is imminent, and we ask that the
Board immediately update shareholders on its
progress. But let us be clear – we will consider
all options available to protect our rights as shareholders, and we
will hold the Board accountable should it pass on a
value-maximizing opportunity for shareholders in favor of a highly
risky standalone plan.
Best regards,
Andrew Rechtschaffen
Managing Partner
James T. Corcoran
Partner
[1] ZAGG Conference Call, November 6, 2018.
[2] ZAGG Conference Call, August 6, 2019.
About AREX
AREX Capital Management, LP is a value-oriented investment firm
based in New York City. AREX takes a long-term, opportunistic
approach to investing and focuses primarily on publicly-traded
companies with significant, unrealized potential. After
intensive research and rigorous fundamental analysis, AREX
interacts both privately and publicly with companies to actively
create value.
Media Contact
Valerie Toomey
AREX Capital Management, LP
(646) 679-4000
info@arexcapital.com
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SOURCE AREX Capital Management, LP