Just about everybody agrees that Jordan Levy is a Buffalo booster.
The local venture capitalist co-founded the Z80 Labs incubator for budding technology companies in 2012. He heads the steering committee for the $5 million business plan competition to attract promising entrepreneurs to the region that’s part of Gov. Andrew M. Cuomo’s Buffalo Billion economic development initiative.
He’s the chairman of Synacor Inc., the Buffalo-based Internet content provider that’s snarled in a nasty fight with a pair of disgruntled shareholders that own 9.8 percent of the company’s stock. They want Synacor, which has been losing money and losing sales, to put itself up for sale.
And they want Levy to resign, questioning whether he’s putting his civic pride ahead of his fiduciary duty to do what’s best for shareholders and the company. They portray him as the chief defender of the status quo at a business with 350 local employes that’s on the decline and not showing many signs that a turnaround is near.
“We are disappointed that your chairman, Jordan Levy, has again lead (sic) you into making decisions that are a mockery of proper corporate governance, designed to further entrench this board and Chairman Levy, and wholly unnecessary in light of the facts,” the investors, JEC Capital Partners and Ratio Capital Management, said in a letter to Synacor’s board last week, after the company adopted a poison pill anti-takeover defense.
Levy is taking the heat quietly. He’s repeatedly declined interview requests to discuss the Synacor fight. When I asked again last week, he referred me to a statement the company issued when it adopted the shareholder rights plan aimed at forcing any potential suitors to negotiate an acquisition with Synacor’s board.
That statement was the most aggressive response Synacor has given to the dissident shareholder’s allegations. In it, Levy questioned the motives of Peter Heiland, a managing director of Massachusetts-based JEC Capital who also serves as the interim CEO of Piksel, a competitor that Levy said could be a potential acquirer of Synacor. Heiland, who has a history of shareholder activism, was named to his post at Piksel, then known as KIT Digital, after launching an campaign against that company’s management in 2012.
Daniel Lewis, an activist New York City hedge fund manager who grew up in Williamsville and knows Levy, said Synacor’s dissident shareholders are being disingenuous.
“He has not addressed his significant conflict of interest as the CEO of Piksel,” said Lewis, the managing partner of Orange Capital, which doesn’t own any Synacor stock but has run activist campaigns that sought changes at companies from mortgage servicer PHH Corp. to Chicago-based lodging firm Strategic Hotels.
“There are serious ethical issues about this kind activist campaign,” Lewis said.
Lewis thinks the disgruntled shareholders, who also have said Synacor should sell the company and stop looking for a new CEO to replace the departing Ronald Frankel, are pursuing a strategy that would lead to a fire sale of the company.
“By telling a company not to hire a CEO, you’re basically telling the company to sell at a distressed price,” Lewis said.
To be sure, Synacor is in distress.
The company lost $1.4 million last year as its revenues slid by 8 percent after a change by Microsoft in its Windows 8 operating system relegated the start pages that Synacor operates for its customers to a secondary screen that requires extra clicks for users to access.
That led to an 8 percent drop in Synacor’s sales to $112 million, with the company predicting that revenues will fall by another 11 percent this year, to $100 million.
The result is that Wall Street doesn’t think Synacor’s business is worth much. The company had $33 million in cash at the end of March, which is the equivalent of about $1.20 per share, or a little less than the company’s share price of around $2.50. That means investors are valuing Synacor’s actual business at a mere $1.30 per share.
Still, Synacor’s management is telling investors that they think its stable of new products, from authentication and single log-in services to new applications for tablets and mobile devices, eventually will catch on and bring in new business that would make the company profitable again and bolster its sagging stock. Synacor’s shares have lost about half their value since its February 2012 initial public offering.
Analyst Richard Tullo of the investment firm Albert Fried & Co. isn’t so sure.
“I don’t know if it will pay off,” he said.
“But we’ve had a year where revenues have been declining and the business that they’ve been promising would develop hasn’t happened,” said Tullo, who thinks selling the company would be a less risky way to give shareholders a better return on their Synacor investment.
Pete Grum, the president of Buffalo venture capital firm Rand Capital Corp., said Synacor’s cash cushion means management has time for its strategy to play out – if it can fend off the shareholder revolt.
“If someone comes along and approaches the board and says we’re going to pay you $10 a share, I’m sure the board would listen,” said Grum, whose firm owns a 2 percent stake in Synacor.
And that includes Levy.
“Has he been a big promoter of Buffalo? Yes. Has Synacor been good for Buffalo? Yes,” Grum said.
“But he can’t – and he won’t – put those interests ahead of the interests of investors,” he said.