Nuance Communications Inc. (NUAN), the maker of speech-recognition software, named two directors from the firm of activist investor Carl Icahn, warding off a proxy fight for control of the company’s board.
Brett Icahn and David Schechter, who co-manage the Sargon portfolio for Icahn Enterprises LP, will become Nuance directors, bringing the size of the board from nine to 11, according to a statement today. As part of a pact with Nuance, the investment firm agreed to a standstill provision, which prevents a hostile takeover by limiting the amount of voting stock it can acquire to 20 percent.
Icahn Enterprises, based in New York, typically uses holdings to seek change in companies deemed undervalued or ill-managed. The firm is the largest investor in Nuance, which has posted three straight quarters of losses. Icahn’s next steps could include pushing for a new chief executive officer, a breakup of the company or an outright sale of Nuance, according to Daniel Ives, an analyst at FBR Capital Markets in New York.
“Given the fundamental weakness at Nuance over the past few quarters, we believe Icahn has many potential scenarios,” Ives said in a report. He has the equivalent of a hold rating on shares of the Burlington, Massachusetts-based company.
Nuance fell 2 percent to $18.13 at the close in New York. The stock has declined 19 percent this year.
“We see numerous, promising growth opportunities for the company,” Schechter and Brett Icahn, who is Carl’s son, said in the statement. “We will work with the board and management team to continue enhancing stockholder value.”
Carl Icahn, 77, said in a Twitter post that he was optimistic about the potential to boost Nuance’s stock. He cited a similar agreement with Hain Celestial Group in 2010. Shares of Hain, a maker of natural beverages and snacks, climbed from $20.20 to $79.56 in the three years that Schechter and his son sat on the board, he said.
Last year, Carl Icahn agreed to allocate as much as $3 billion to the Sargon portfolio, expanding the role of his son and Schechter in running the billionaire’s investments. Under the agreement, the duo can invest in companies with stock market values between $750 million and $10 billion.
Icahn’s firm and its affiliates own about 16.7 percent of Nuance’s outstanding shares. As part of today’s accord, Icahn will support the current slate of directors and not lobby to make further board changes. Investors could get a better sense of the new strategy at Nuance’s annual meeting or analyst day in the coming months, Ives said.
“We are pleased to welcome Brett and David to our board of directors and look forward to their contributions,” Nuance CEO Paul Ricci said in the statement. “Over the past few quarters, we have made significant progress in our efforts to deliver enhanced stockholder value, and we remain enthusiastic about Nuance’s long-term prospects.”
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