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Synacor management rebuffs challenge

Synacor’s management scored a victory Monday, as shareholders chose management-backed board candidates over a slate presented by dissident investors.

The Buffalo-based Internet content provider said that voting results will not be known until Wednesday, but board Chairman Jordan A. Levy said after Monday’s annual meeting that management-backed candidates appeared to have won “overwhelmingly.” The percentage was not disclosed. In an unusual move, the company did not allow media coverage of its annual meeting, which was held at Embassy Suites in downtown Buffalo.

Dissident investors unhappy with Synacor’s performance challenged management, hoping to gain control of three of the seven board seats up for election. Instead, the management-supported candidates prevailed: Levy, a Buffalo venture capitalist; Himesh Bhise, named CEO last August; and Andrew M. Kau, a longtime board member.

Synacor employs about 200 people at its Buffalo waterfront headquarters. Its stock has lost about half of its value since its initial public offering about three years ago. Dissident shareholders JEC Capital Partners and Ratio Capital Partners, which own nearly 10 percent of the company’s shares, have called for management to sell the company to provide a return to shareholders. A sale theoretically could imperil Synacor’s local headquarters and jobs, since a buyer could decide to move the operations elsewhere.

Monday’s annual meeting brought to a head the struggle between management and the dissident investors. Adding to the debate was a recommendation by a proxy voting advisory firm, Institutional Shareholder Services, which offers voting advice for shareholders and institutional investors. ISS had recommended the dissidents’ slate of candidates.

Levy called the dissidents’ challenge to Synacor’s leadership “a ridiculous, unnecessary distraction to the company.”

“It cost us time, it cost us money, it cost us a lot of things we shouldn’t have had to spend time with,” Levy said. “Obviously, the shareholders in the end agreed with the decisions we made. As a board, we know that we obviously had some bumps and made some mistakes.”

Levy said the board had responded by making the necessary changes, and conducted a “methodical, intelligent” nine-month search for a CEO that led to Bhise’s hiring.

Levy praised the company’s direction under Bhise, who was named CEO last August.

“The company’s in the best shape it’s been since before it went public,” Levy said. “Our numbers are better than they’ve been. Our finances are in great shape. We’re adding customers.”

Synacor ended an eight-quarter streak of declining revenues during the fourth quarter, posting the second-highest quarterly sales in its history.

Bhise said of the board vote: “I take that as a testament to the work we’ve done to bring the company back to profitability, the new strategy and the market segments we’re going after, and some of the results that we’ve been able to convey.”

But JEC Capital Partners offered a different view of the results. Matthew Manning, a spokesman for Massachusetts-based JEC, said early indications were that voting by stockholders who were not board members or managers tilted heavily against management’s slate of candidates. “That, to us, represents an overwhelming level of support for change,” Manning said, “but not enough to rescue the company from the current board.”

Manning said JEC would review the final results when they become available before considering its next step. He declined to discuss what that might be.

Dissident shareholders had criticized Synacor for moving the annual meeting to April, from May, before first-quarter results were released.

Earlier this month, Synacor said that it expected its first-quarter sales to be stronger than it forecast in late February, topping last year’s revenues by about 4 percent.

“People had criticisms of us that we were doing this without releasing our numbers, so we gave indication about where we think the quarter’s going to be, to show people,” Levy said.

Last year, Synacor cut about 70 local jobs as part of cutbacks that reduced its workforce by 20 percent. Its stock closed at $2.39 on Monday, up by 4 cents, or 1.7 percent.

Another point of contention was a poison pill anti-takeover defense put before shareholders; management favored it, and the dissident shareholders opposed it. The outcome of that vote was not available Monday.

Synacor restricted attendance at its meeting to shareholders, not permitting media inside.

Bhise said he made that decision to allow shareholders to speak more freely at the meeting when they asked questions of Synacor executives.

“I figured they would be a lot more comfortable in an environment where there wasn’t press or they were at risk of being quoted without proactively being onboard,” Bhise said.

No shareholders asked questions during the meeting, he said.