A second activist hedge fund has bought up a large stake in the struggling language learning company. Here’s why the two activists say change is needed — and fast.
Two of the three largest investors in Rosetta Stone have declared their intent to take action at the struggling language learning company, which, according to John Lewis, founder of the activist hedge fund Osmium Partners, shows that something is in dire need of change.
Fresh off a major victory at JDate and Christian Mingle parent Spark Networks, where he replaced four members of the board and forced the resignation of longtime CEO Greg Liberman last month, Lewis has taken a nearly 10% stake with the intent to agitate for change at Rosetta Stone. Osmium has aligned with Nierenberg Investment management, now Rosetta's third largest investor with a 7.9% stake, to force a management change at the company, and the firms are taking their grievances public.
In three separate filings with the Securities and Exchange Commission over the summer, Nierenberg has laid out its case for what needs to change at Rosetta Stone. And on Tuesday, Lewis spoke at 2014 New York Value Investing Congress to share his insights. Here's what he thinks went wrong:
Nierenberg believes Rosetta Stone is trying to take on too many endeavors at once.
"We do not think that the focus at RST is tight enough. We believe, instead, that the company is undertaking too many initiatives simultaneously," Nierenberg wrote in its first filing earlier this summer after announcing it would take action to replace the board at Rosetta Stone. "We fear that RST's 'initiative overload' may be causing sub-optimal execution and impairing free cash flow. We find it difficult to believe, for example, that all of the many product, pricing, distribution, and channel initiatives being pursued in RST's North American consumer (NAC) business are equally worthy."
Continuing to miss earnings and a plummeting stock price.
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