A Move Inc. shareholder group seeks the ouster of company CEO Mike Long and Chief Financial Officer Lewis R. Belote III over a $129.9 million securities investment that is currently illiquid.
David Nierenberg, representing The D3 Family Funds of Camas, Wash., charges in a U.S. Securities and Exchange Commission filing today that Realtor.com operator Move Inc.’s large investment in auction-rate securities was a "blunder," as investor interest in that market has dropped off sharply.
Move Inc. officials were not immediately available for comment.
Nierenberg requests in the filing that the Move Inc. board "dismiss both the CEO and the CFO. We believe in personal accountability. To us it really is that simple." The document also questions whether the company "trusted the glib assurances of those who sold it the auction-rate securities without performing Move’s own independent due diligence or post-investment monitoring," and whether the investment decision traded off safety for yield.
Also, the filing asks the company to demand that those who sold the company its auction-rate securities "buy those securities back from Move now for 100 cents on the dollar, cash," and if this is not possible, for Move to "aggressively assess and pursue" other remedies. The filing suggests that the company could sell its "money-losing businesses for cash and … redeploy the profits generated by the company’s core business into profitably growing the core."
The shareholder group that Nierenberg represents in the SEC filing accounts for about 6.6 percent of all shares in the company, and Nierenberg acknowledged that the group is made up of "relatively new Move shareholders."
The group began building its position in the company in January, according to the filing, with an acquisition of 72,324 shares on Jan. 10 and a long series of subsequent buys — the largest of which was the purchase of 1.66 million shares on Jan. 31 by the D3 Family Bulldog Fund LP.
In an earnings report last week, Move Inc. officials reported that its investment in federally backed student-loan auction-rate securities, issued by student-loan financing organizations, was impacted by failures in the auction-rate securities market. This market features investments in corporate or municipal bonds that have long-term maturity and rapidly resetting interest rates that are established through an auction process.
"While the company remains confident it has enough cash to continue to execute its current business plans, it may not be able to access these funds until a future auction of these investments is successful or they are redeemed by the issuer or they mature," the company stated in its earnings report. The maturity dates for the instruments are more than two decades a way — from 2030 to 2047.
Nierenberg told Inman News he is not worried about the financial solvency of Move Inc., but he said he does worry that the substantial investment has tied up money that could have been used to fuel growth. The investment in auction-rate securities represents about 74 percent of the company’s total $175.6 million in cash and short-term investments, according to the company’s fourth-quarter earnings report.
Nierenberg said that it’s "very difficult to know when (Move Inc.) is going to regain access to that cash tied up in the auction-rate securities. He said he previously changed his own investment strategy when he saw "funny things happening in the short-term investment market, and decided that we were going to exclusively trade higher yield to go into something safer. When that was happening, why wasn’t this company thinking about the same thing?"
He added, "Our position is: One of the top priorities of any senior management team should be at all times, at all costs, to protect the company’s cash." He said he does not believe that any inability to use the $130 million investment jeopardizes Move Inc., as the company does generate cash flow. "I have no concern at all about the safety viability of the company." And he said he believes that the company is well positioned to capitalize from the shift in advertising dollars to online sites.
Nierenberg said he was immediately concerned about the deep investment when he learned about it in the company’s earnings announcement, and had expressed this concern to members of the Move Inc. board at that time. He said he questions whether the investment uncertainty will impair the company’s stock repurchase program.
In September the company had announced plans to repurchase up to $50 million in stock using surplus cash. According to its fourth-quarter earnings report, the company has already bought back about 4.2 million shares of stock at $2.40 per share, for a total of $10 million.
It may not be prudent for Move Inc. to simply "flush" and "dump" its investment in auction-rate securities, Nierenberg said, as he doesn’t want the company to take a major loss in its investment. He does want the board to examine the company’s past investment decisions and "make appropriate modifications," even if that is like "locking the barn door after the horse has gone."
Officials at Elevation Partners, a private equity firm that in November 2005 announced a $100 million stock investment in Move Inc., had no immediate comment about the shareholder group’s request to dismiss Long and Belote. Elevation Partners team members include Bono, the lead singer for rock group U2, and Fred Anderson, former executive vice president and CFO for Apple Computer.
Long and Belote joined the company in 2002, following a management shakeup related to a major accounting scandal.
Move Inc. reported last week that the company had a $4 million loss for the full year in 2007 and a $5.3 million loss in fourth-quarter 2007. Company revenue climbed from $280.1 million in 2006 to $286.3 million in 2007. The company’s stock price was trading at $2.39 per share as of 1:40 p.m. ET today, up 11 cents compared with the previous day’s closing price of $2.28.
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