Engaged Capital Warns Coupons.com-Owner Quotient Not to Pursue a Share Sale

(Bloomberg) -- Activist investor Engaged Capital is threatening legal action if Quotient Technology Inc. sells shares in the digital media company ahead of its annual general meeting to give itself an advantage in a boardroom fight. 

Engaged said in a letter Monday to the Quotient board that it has heard from “credible sources” that Chairman and Chief Executive Officer Steven Boal and other directors have had conversations with interested parties to potentially sell up to 19.9% of the company’s outstanding shares in the form of convertible preferred securities. The proceeds would be used to buy back the company’s shares, Engaged alleged. 

“Other than vote buying, this would be an inexplicable business decision given the highly dilutive effect of an equity capital raise when the stock is trading near all-time lows,” Engaged founder Glenn Welling said in the letter, a copy of which was reviewed by Bloomberg News.

A representative for Quotient declined to comment. Shares in the Salt Lake City, Utah-based company fell 7.1% in trading Monday to $6.83 apiece as of 9:36 a.m. in New York. 

Engaged disclosed a 6.5% stake in Quotient, the owner of Coupons.com, in November. The investment firm has urged the company to explore ways to improve value for shareholders. Engaged has asked the board to hire independent investment bankers and counsel, saying it was clear that certain members of the board and management had divergent ideas. 

Welling said Monday any attempt to sell the preferred shares ahead of the annual meeting would trigger legal action because it would give the company an unfair advantage in any proxy fight that may ensue.

“If the board proceeds with such a transaction, we will commence legal action immediately against the company and each director individually,” Welling said. “We will also seek an injunction to prevent any newly issued shares from being voted while the action is pending and otherwise exhaust all legal remedies to ensure that stockholders’ rights are protected at Quotient.”

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