April 24 (Bloomberg) -- Groupon Inc. is seeking to hire at least two new directors to its board as it attempts to regain investor confidence following a restatement of revenue last month, two people familiar with the matter said.
The largest provider of online daily deals aims to recruit a new director who could eventually lead its audit committee, said one of the people, who asked not to be named because the plan is private. Potential candidates include chief financial officers at publicly traded companies, the person said.
Groupon is responding to criticism that it misled investors after reporting a “material weakness” in financial controls and lower fourth-quarter revenue than previously stated. The stock has dropped 35 percent since the March 30 announcement, and Groupon officers, directors and underwriters were named in a lawsuit filed by investor Fan Zhang in Chicago federal court this month.
“New blood would be good, particularly if they have strength in some of the areas they seem to be lacking right now,” Edward Woo, an analyst at Ascendiant Capital Markets LLC, said in an interview. “They need somebody with a skill set to help them stop doing these accounting irregularities.” Irvine, California-based Woo recommends selling shares of Groupon.
New directors would add to an eight-person board that includes founder and Chief Executive Officer Andrew Mason, Executive Chairman Eric Lefkofsky and Howard Schultz, the founder and CEO of Starbucks Corp. The company held an initial public offering in November 2011.
“Companies who have gone through an IPO begin to look at board structure, and Groupon is no exception,” Paul Taaffe, a spokesman for Chicago-based Groupon, said in a telephone interview. He declined to comment further on potential changes to the company’s board.
Ted Leonsis, the current chairman of Groupon’s audit committee, is an Internet entrepreneur, sports-team owner and film producer. There are no current plans to replace Leonsis as head of the committee, one person said. His partnership in Revolution Growth, an investing fund that owns stock in Groupon rival LivingSocial, has been called a potential conflict by corporate governance experts such as Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
Zhang, the investor who sued Groupon, seeks class-action status on behalf of anyone who bought the stock from Nov. 4 to March 30, and an award of unspecified money damages. Zhang owned as many as 3,000 shares from Feb. 9 to March 6, bought for as much as $21.75.
Groupon’s restatement raised questions about why its auditor, Ernst & Young LLP, didn’t point out concerns sooner. The coupon provider has been working with KPMG LLP to address the causes of the material weakness, Taaffe said earlier this month.
The company has struggled to get its financial statements in order since filing for its IPO last June. Groupon abandoned an accounting method for operating income after a review by regulators, and later restated 2010 results.
Groupon shares rose less than 1 percent to $11.96 at the close in New York, reversing an earlier decline.
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