Shutterfly Dissident Marathon Said Planning Proxy Fight

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Jeff Housenbold, chief executive officer of Shutterfly Inc.

Jeff Housenbold, chief executive officer of Shutterfly Inc.

Photographer: David Paul Morris/Bloomberg

Shutterfly Inc. shareholder Marathon Partners Equity Management is pursuing three board seats at the digital photo website after rejecting a settlement offer of one, people with knowledge of the matter said.

Marathon Partners will file proxy fight materials with regulators this week, said the people, who asked not to be identified discussing private negotiations. The move follows months of talks with the company to address criticisms of executive compensation, acquisition strategies and performance, as well as last year’s unsuccessful effort to sell the company, the people said.

The dissident shareholder said Feb. 26 it would nominate three directors including managing member Mario Cibelli to replace board members up for re-election at the company’s June 12 annual meeting -- among them Chief Executive Officer Jeffrey Housenbold. The fund is escalating its attack on the CEO’s pay and influence over the board after the company failed to appease it with recent changes to how it rewards executive performance, the people said. Marathon owns about 5.4 percent of Shutterfly, they said.

Reviving efforts to sell the company may be the best way to maximize shareholder value, said one of the people, who cited Shutterfly’s depressed share price and the additional compensation Housenbold would receive in the event the company is sold.

Representatives of Shutterfly didn’t immediately respond to requests for comment.

Company Efforts

Shutterfly last week urged shareholders to re-elect its incumbent directors. On Wednesday, Housenbold said at a conference that the company had offered Cibelli a directorship “because he’s a large shareholder, and we’ve welcomed him on the board, but he hasn’t taken us up on that offer.”

Shutterfly has responded to broader shareholder feedback by reducing its burn rate, authorizing $400 million in buybacks and changing CEO compensation, Housenbold said at the Robert W. Baird Growth Stock Conference in Chicago.

Marathon has invested in the stock since 2008 and went activist in July. Shutterfly last year hired boutique investment bank Qatalyst Partners to find potential buyers, people familiar with the matter said at the time. In October, technology buyout firm Silver Lake Management shelved efforts to acquire and combine Shutterfly and rival photo-sharing site Snapfish, sources said then.

Shutterfly, which turns digital photos into printed albums and other memorabilia, has fallen 6.9 percent since the unsuccessful sale effort, leaving it with a market value of $1.69 billion.

Founded in 1999, Shutterfly has since acquired companies such as Tiny Prints and Wedding Paper Divas to round out a portfolio of stationery, greeting cards and invitations. It also acquired Kodak Gallery from Eastman Kodak Co. in 2012. Its early backers included Netscape Communications Corp.’s co-founder Jim Clark.

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