OneSpan Pushed by Legion to Sell Assets, Oust Founder

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Activist investor Legion Partners Asset Management is pushing for changes at OneSpan Inc., including urging the cybersecurity firm to sell assets and remove its founder from the board to improve its stock performance.

Legion, which owns a 5.6% stake in OneSpan, said in a letter to the company’s board Tuesday that it should explore a sale of its hardware and e-signature business, OneSpan Sign. Selling OneSpan Sign could generate about $400 million, or about 62% of the market value of the entire company, according to Legion.

“We find the board’s failings to be wholly unacceptable given the state of the company’s transition and believe dramatic improvements to OneSpan’s strategy, investor communications and board composition are necessary to rectify the company’s current predicament,” Legion managing directors Chris Kiper and Ted White said in the letter, which was reviewed by Bloomberg News.

Legion said it also believed the time had come for the company to remove founder T. Kendall Hunt from the board after more than 23 years.

OneSpan shares rose 7.5% to $20.76 at 3:31 p.m. in New York trading, giving the company a market value of about $837 million.

A representative for OneSpan wasn’t immediately available for comment.

OneSpan Sign is one of the biggest providers of virtual signature software, behind DocuSign Inc. and Adobe Inc. and is a “very valuable asset,” Legion said in the letter. This month, OneSpan said the division’s revenue grew 30% in the second quarter year over year, while its bookings grew by more than 100% during the same period.

Earnings ‘Lumpiness’

Divesting the hardware business would help the company be judged closer to its peers as a higher-growth, pure play software company, Legion said. It would also remove some of the “lumpiness” in its earnings and issues that OneSpan has faced communicating with investors, it said.

OneSpan’s shares fell almost 40% on Aug. 12 after its second-quarter results fell short of analysts’ expectations. The company also pulled its full-year guidance and said it had found some accounting errors that had been fixed.

Chicago-based OneSpan lost $2 million on revenue of $55 million during the quarter, compared with a loss of $2.5 million on revenue of $56 million in the same period last year.

Legion said it believed the company has failed to adequately frame its growth story despite the weakness in the hardware business’s sales during the pandemic. It said the company needed to improve communication with investors to avoid similar sell-offs in the future, and highlight its ongoing growth and digital transformation.

Replacing Hunt

Hunt should be replaced with new, independent directors with capital markets and software experience, Legion wrote. It said that since Legion took its initial stake in 2018, Hunt has sold 4.5 million shares valued at about about $86 million. That included almost 54,000 shares the day before the company disclosed its second-quarter results.

“We are more than willing to offer a representative from Legion Partners to replace Mr. Hunt on the board in order to help oversee the revamp in financial disclosures, multiple strategic review processes, and capital allocation decisions,” Kiper and White said in the letter.

©2020 Bloomberg L.P.

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