Starboard Is Said to Blame Monotype Buying Spree for Lost Value

(Bloomberg) -- Starboard Value is urging Monotype Imaging Holdings Inc. to abandon an acquisition strategy that the activist investor argues has cost shareholders about $12 a share in lost value, people familiar with the matter said.

The New York-based hedge fund, run by Jeff Smith, holds with its partners an 8.2 percent stake in Monotype and has been pushing for changes at the company, including plans to nominate four directors to its board.

Starboard believes Monotype has drastically underperformed its peers in both operating performance and stock price since changing its strategy three years ago to acquire non-core growth businesses instead of focusing on its high-margin font business, said the people, who asked not to be identified because the matter is private. 

Starboard believes Monotype could be valued at $34 a share if it sold certain non-core businesses and returned margins to their previous levels, the people said. Its shares closed Monday at $23.35.

Monotype owns or has ownership-like rights to about 20,000 different fonts and font families, including commonly used ones such as Times New Roman, Arial and Helvetica. It licenses those fonts to customers, including printer and smartphone makers, among others. It also works with creative agencies to develop branding with those fonts or other custom designed lettering.

A representative for Monotype, based in Woburn, Massachusetts, couldn’t be reached for comment after regular business hours Monday. A Starboard representative declined to comment.

Starboard’s Rejection

Monotype said last month that it was disappointed Starboard chose to launch a proxy contest, saying it had engaged in talks with the firm since September. Monotype said Starboard rejected the solutions it offered to avoid a fight.

In Starboard’s view, Monotype’s 2016 purchase of Olapic Inc. for $149 million including stock grants was the most concerning of the company’s strategic missteps, the people said. Olapic, which helps brands promote themselves with user-generated photos, competes with Facebook Inc. and Adobe Systems Inc. as well as small startups. 

Starboard believes Monotype not only overpaid for Olapic, but also that its performance has fallen short of expectations, resulting in Monotype repeatedly reducing its forecasts for the unit, according to the people.

Shrinking Margin

Montotype’s missteps are blamed by Starboard for margins for earnings before interest, taxes, depreciation and amortization falling by about half from earlier peaks to an estimated 22 percent last year, the people said.

Starboard also believes Monotype isn’t fully leveraging its intellectual property and expertise in the font space, and that there are several avenues for addressing that concern in an increasingly digital world, the people said.

Monotype has said last month it’s been working with JPMorgan Chase & Co. since July to explore a broad range of strategic alternatives, including a possible sale. It said it approached 28 potential buyers, but none of the 10 that expressed preliminary interest put in definitive offers. The group included 18 potential strategic buyers and 10 private equity or other financial entities.

“Monotype’s board of directors and management team believe that the best option for shareholders at this time is for Monotype to continue its focus on creating sustainable growth and expanding its profit margins,” the company said in a statement.

Starboard has been particularly active this proxy season. The firm has said this year that it plans to nominate directors to the boards of Rubbermaid maker Newell Brands Inc., semiconductor company Mellanox Technologies Ltd. and Stewart Information Services Corp.

Starboard’s nominees for Monotype’s board at its annual general meeting will include: Kristen O’Hara, chief marketing officer for Time Warner Inc.; Clifford Press, managing member of Oliver Press Partners; former Nortel Networks executive George Riede; and Edward Terino, former president of GET Advisory Services.

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net.

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Michael Hytha

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