Leaf Group Ltd. (NYSE: LEAF), a diversified consumer internet
company, today issued the following letter to its shareholders in
response to a recent public letter from a group of Leaf Group
shareholders (the “Investor Group”):
Dear Valued Shareholders,
The Investor Group recently made a new proposal to the Leaf
Group Board of Directors, which was disclosed in letters they sent
to the Board on October 22, 2020 and November 2, 2020 (copies of
which are attached to this letter). The proposal includes the
following terms:
- Leaf Group’s commitment to starting a new strategic review
process no later than March 31, 2021 unless the Company maintains
an average stock price of $9.00 per share or more throughout the
first quarter of 2021;
- The appointment to the Leaf Group Board of two new Directors
affiliated with the Investor Group—Robert Majteles and Michael
McConnell;
- The capping of the size of the Board at a total of seven
Directors;
- The establishment of a new strategic review committee composed
of the Investor Group’s two Director nominees and one current
outside Leaf Group Director of the Board’s choosing, which would
select new financial and legal advisors for the strategic review
and oversee the process;
- Sean Moriarty remaining CEO of the Company; and
- Mr. Moriarty receiving a stock award package in connection with
a sale of the Company which would result in him receiving at least
$6 million if the Company is sold for at least $9.00 per
share.
It is clear that the proposal’s provisions have one purpose: to
force the near-term sale of the Company. The Investor Group has
been pursuing a sale since it began its campaign in June 2020, and
as we have said before, we believe that
the Investor
Group’s continued
efforts to force a sale
are driven by a
narrow and self-serving
agenda that is
directly at odds with the best
interests of our broader
investor base. We believe that it
is in all shareholders’ best interest for the Company to continue
to drive results to increase shareholder
value.
NOW IS NOT THE TIME FOR A SECOND
STRATEGIC REVIEW
This view is grounded in the fact that, in line with our
fiduciary obligations, we have thoroughly assessed the merits of a
potential second strategic review, including consulting with a
number of leading investment bankers. This evaluation process has
left us highly confident that initiating another strategic review
so soon after the completion of our last review would be
ill-advised, particularly in light of our recent financial
performance. We firmly believe that our current strategic plan is
the best way to enhance shareholder value, and that another review
has the potential to damage the business.
The recent performance of our business and stock price bear this
out. Since completing our strategic review in May 2020, Leaf
Group has posted stellar results. As previously
announced, for Q3 2020 the Company delivered $63.3
million in revenue, a 58% year-over-year growth in revenue and our
strongest revenue growth in over a decade. We also reported $2.6
million in Adjusted EBITDA, a $2.3 million improvement over the
prior year period. We continue to demonstrate strong momentum
toward our 2022 targets of over $250 million in revenue and $20
million in Adjusted EBITDA.
Our recent stock market performance supports
the Board’s strategic
direction, with Leaf Group’s stock up over 300%
since the conclusion of our last strategic review in May
2020.
With the Company performing well and its current direction
supported by the market, now is not the time to risk disrupting
momentum that is benefiting shareholders. To that end, the
following stock charts are illuminating. The first shows Leaf
Group’s stock performance from when we launched our strategic
review after similar pressure from certain members of the Investor
Group on April 15, 2019, through the conclusion of the review on
May 19, 2020:
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/ce9f8555-236d-410c-9007-0db292750b07
Compare that to the following chart, which shows the Company’s
stock price growth since announcing the conclusion of the strategic
review in May 2020:
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/9ca997ca-4103-451b-925c-5384d9b03884
The activist campaign in the spring of 2019 and the resulting
strategic review process destroyed shareholder value. And while we
are pleased with how our stock performance has improved since May
2020, we have no doubt that the Investor Group’s current aggressive
PR campaign continues to be an overhang on the stock.
Investors should be asking
themselves how much additional
value a second review process would
destroy, in addition to how
much the Investor Group’s self-serving efforts
have already cost
them.
THE INVESTOR GROUP IS SEEKING TO FURTHER
ITS OWN INTERESTS AT THE EXPENSE OF OTHER SHAREHOLDERS
The Investor Group is clearly pushing the Company to do
something that Leaf Group’s Board, management team and third-party
advisors agree would harm the Company and shareholder value. Its
Directors will control the new strategic review committee with its
handpicked financial and legal advisors to ensure they drive the
result that they seek. The next logical question is, “What are the
Investor Group’s motivations and are they aligned with the
interests of all other shareholders?”
After the Leaf Group Board was pressured to launch a strategic
review in April 2019, Investor Group member Oak Management Group
sold 769,388 shares of Leaf Group common stock from November 2019
through May 2020 at prices as low as $1.10 per share. Oak Managing
Partner Fred Harman disclosed that these sales were driven by a
need to raise capital for his firm’s other investments.
Additionally, Spectrum sold 500,000 Leaf Group shares at $5.13 per
share on October 5, 2020 — a day when Leaf Group’s stock price on
the open market fluctuated between $5.74 and $6.19. We urge our
shareholders to question what motivation Spectrum could possibly
have for selling such a large amount of stock below market value
other than a need to liquidate its Leaf Group position.
Even the Investor Group’s new willingness not to conduct the
strategic alternative process if certain targets are met is
illusory. For a strategic process not to be run, the Company’s
45-day moving average stock price must remain at or over $9.00 per
share during the first quarter of 2021. The initial $9.00 price
target would mark a 56% increase from the closing
price of Leaf Group’s stock on the day our Board received the
Investor Group’s proposal, and a more than
400% increase
from the Company’s stock price at the conclusion of our strategic
review in May 2020. This already tremendous hurdle would grow over
time, with the minimum average stock price allowed under the terms
of the proposal increasing in each successive quarter in 2021.
We believe based on our regular interactions with our
shareholders that most are seeking sustainable, long-term value
generation. The actions of select members of the Investor Group
suggest a narrow, short-term and self-serving agenda that does not
prioritize the interests of our broader shareholder base.
THE INVESTOR GROUP’S PROPOSED DIRECTORS
ARE LIKELY TO ADVANCE ITS
INTERESTS AT THE EXPENSE
OF OTHER SHAREHOLDERS
Given that the Investor Group’s goals do not appear to align
with those of the broader investor base, shareholders
should also ask whether its two
Director candidates are likely to act in
the best interests of all
shareholders. The following charts
illustrate just how closely its Director candidates are affiliated
with certain members of the Investor Group:
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/0fb9dee3-909f-4ca3-a106-1d3d5c650371
As we announced earlier today, we have just named two new
Directors—Rob Krolik and Suzanne Hopgood – to our Board of
Directors. You can find more information about these Directors, who
were selected with the support of a leading outside search firm, in
our press release here. This announcement is just the latest step
in our efforts to overhaul our Board. The Board now includes five
independent Directors, all of whom have been on the Board for four
years or less, and we are confident that this refreshed Board has
the relevant experience and fresh perspectives needed to help guide
the Company into its next chapter. Importantly, the current Board
also reflects a goal that we and many of our investors value highly
in having a diverse group of individuals—our six Directors include
four women and one person of color.
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/571f84c9-eeee-4991-b094-767c18910f2d
Our Board continues to evaluate a wide range of strategic
alternatives and remains committed to acting in the best interest
of its shareholders. We thank you for your support.
Sincerely,The Independent Committee
Deborah A. Benton |
Beverly K. Carmichael |
Chair of the Board |
Director |
About Leaf Group Leaf Group Ltd. (NYSE:
LEAF) is a diversified consumer internet company that builds
enduring, creative-driven brands that reach passionate audiences in
large and growing lifestyle categories, including fitness and
wellness (Well+Good, Livestrong.com and MyPlate
App), and home, art and design (Saatchi
Art, Society6 and Hunker). For more information
about Leaf Group, visit www.leafgroup.com.
Cautionary Information Regarding Forward-Looking
Statements
This communication contains “forward-looking statements” within
the meaning of the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995. The forward-looking
statements set forth in this communication include, among other
things, statements regarding potential synergies achieved from
acquisitions, the impact of strategic operational changes and the
Company’s future financial performance. In addition, statements
containing words such as “guidance,” “may,” “believe,”
“anticipate,” “expect,” “intend,” “plan,” “project,” “projections,”
“business outlook,” and “estimate” or similar expressions
constitute forward-looking statements. Actual results may differ
materially from the results predicted and reported results should
not be considered an indication of future performance. These
forward-looking statements involve risks and uncertainties
regarding the Company’s future financial performance; could cause
actual results or developments to differ materially from those
indicated due to a number of factors affecting Leaf Group’s
operations, markets, products and services; and are based on
current expectations, estimates and projections about the Company’s
industry, financial condition, operating performance and results of
operations, including certain assumptions related thereto.
Potential risks and uncertainties that could affect the Company’s
operating and financial results are described in Leaf Group’s
annual report on Form 10-K for the fiscal year ending December 31,
2019 filed with the Securities and Exchange Commission
(http://www.sec.gov) on March 16, 2020, as such risks and
uncertainties may be updated from time to time in Leaf Group’s
quarterly reports on Form 10-Q filed with the Securities and
Exchange Commission, including, without limitation, information
under the captions “Risk Factors” and “Management's Discussion and
Analysis of Financial Condition and Results of Operations.” These
risks and uncertainties include, among others: risks associated
with political and economic instability domestically and
internationally including those resulting from the COVID-19
pandemic, which have and could lead to fluctuations in the
availability of credit, decreased business and consumer confidence
and increased unemployment; the Company’s ability to execute its
business plan to return to compliance with the continued listing
criteria of the New York Stock Exchange (“NYSE”); the Company’s
ability to continue to comply with applicable listing standards
within the available cure period; changes by the Small Business
Administration or other governmental authorities regarding the
Coronavirus Aid, Relief and Economic Security Act of 2020 (the
“CARES Act”), the Paycheck Protection Program (“PPP”) or related
administrative matters; the Company’s ability to comply with the
terms of the PPP loan and the CARES Act, including to use the
proceeds of the PPP loan; the Company’s ability to successfully
drive and increase traffic to its marketplaces and media
properties; changes in the methodologies of internet search
engines, including ongoing algorithmic changes made by Google, Bing
and Yahoo!; the Company’s ability to attract new and repeat
customers and artists to its marketplaces and successfully grow its
marketplace businesses; the potential impact on advertising-based
revenue from lower ad unit rates, a reduction in online advertising
spending, a loss of advertisers, lower advertising yields,
increased availability of ad blocking software, particularly on
mobile devices and/or ongoing changes in ad unit formats; the
Company’s dependence on various agreements with a specific business
partner for a significant portion of its advertising revenue; the
effects of shifting consumption of media content and online
shopping from desktop to mobile devices and/or social media
platforms; the Company’s history of incurring net operating losses;
the Company’s ability to obtain capital when desired on favorable
terms; potential write downs, reserves against or impairment of
assets including receivables, goodwill, intangibles (including
media content) or other assets; the Company’s ability to
effectively integrate, manage, operate and grow acquired
businesses; the Company’s ability to retain key personnel; the
Company’s ability to prevent any actual or perceived security
breaches; the Company’s ability to expand its business
internationally; the Company’s ability to generate long-term value
for its stockholders; and any ongoing actions taken and future
actions that may be taken by activist stockholders. From time to
time, the Company may consider acquisitions or divestitures that,
if consummated, could be material. Any forward-looking statements
regarding financial metrics are based upon the assumption that no
such acquisition or divestiture is consummated during the relevant
periods. If an acquisition or divestiture were consummated, actual
results could differ materially from any forward-looking
statements. Any forward-looking statement made by the Company in
this press release is based only on information currently available
to the Company and speaks only as of the date on which it is made.
The Company undertakes no obligation to revise or update any
forward-looking information, whether written or oral, that may be
made from time to time, whether as a result of new information,
future developments or otherwise, except as required by law, and
may not provide this type of information in the future.
Investor ContactsShawn MilneInvestor
Relations415-264-3419shawn.milne@leafgroup.com
Media ContactsJohn Christiansen/Matt ReidSard
Verbinnen &
Co415-618-8750/310-201-2040LeafGroup-SVC@sardverb.com
Sharna DadukVP,
CommunicationsSharna.daduk@leafgroup.com
PDFs are available
at: http://ml.globenewswire.com/Resource/Download/245fde91-dd1a-4a34-87d2-3b3b4bf4a931
http://ml.globenewswire.com/Resource/Download/ae581ca2-b3ab-44bf-bb5f-a978d31b55c1
Leaf (NYSE:LEAF)
Historical Stock Chart
From Mar 2024 to Apr 2024
Leaf (NYSE:LEAF)
Historical Stock Chart
From Apr 2023 to Apr 2024