From the corner room of his modest single-story tract home in Encino, Perry Rod waged battle against a digital music icon.
It was a difficult fight. Rod, a 29-year-old independent investor, and two like-minded dissident investors were seeking seats on the board of Napster Inc., the struggling online music provider.
The company fought back, dismissed Rod as "the musician" with no experience and then, three days before the outcome would be decided at its annual shareholder meeting, announced it was selling itself to Best Buy Inc.
Now Rod, the son of Iranian immigrants, claims the fight he launched played a crucial role in the $121 million acquisition deal, announced in mid-September. He said support for his slate heading into the annual shareholder meeting was "overwhelming" and pressured management into the sale.
Napster executives scoff at the notion that Rod and his fellow dissidents had any impact. Best Buy's tender offer for Napster, filed Sept. 26, shows it first approached Napster about a purchase in January roughly the same time Rod began to explore a proxy battle.
In his first extensive interview since the acquisition, Rod described the sale as bittersweet. He estimated he will turn a modest profit on his 73,000 shares less than 0.15 percent of the company if the acquisition is approved.
But he also felt the deal undervalues Napster and that the timing of the announcement undermined the proxy vote.
"I didn't anticipate they would sell in a fire sale three days before the annual meeting," Rod said.
A self-taught investor, Rod studied philosophy and politics at Georgetown University but harbored an interest in the stock market as far back as high school. He first bought Napster shares in 2006 because he thought the company with one of the largest digital music libraries in the industry sounded too good to fail.
Napster, formerly Roxio, purchased the name of the notorious illegal file-sharing Web site founded by entrepreneur Shawn Fanning. When the company moved to Los Angeles from Santa Clara in 2003, it looked like the company could turn online music subscriptions into a viable business.
But Napster shares fluctuated wildly. Bitter at what he saw as poor management, Rod sold his stake in Napster for a loss.
When Napster stock dipped below $2 in January, Rod decided to re-invest with the goal of becoming an activist shareholder and winning a seat on the board.
He scoured Internet message boards and e-mailed in search of fellow frustrated investors with the desire and stamina to wage a proxy fight. Thomas Sailors, a Texas investment manager, and Kavan Singh, a Missouri-based owner of a chain of Cold Stone Creamery franchises, volunteered.
Rod felt Sailors' and Singh's backgrounds in finance and business added credibility to his slate. His role? "I was sort of the mastermind," he said.
Slim to none
The odds appeared stacked against Rod's slate. Two proxy adviser firms in early September dismissed the dissidents as unqualified, and many analysts said their chances were slim to none. At first, Rod now admits, so did he.
"When I started this up in January, I thought our chances of winning were about 10, 20 percent," he said. "I thought: It's going to be an uphill battle to get people to take us seriously."
But as the trio reached out to shareholders, Rod said they found many who were similarly exasperated that Napster's share price had plunged 95 percent since 2002.
"There was just overwhelming distaste for the way this company had been run," he said.
In the following months, Rod put all of his other investment activities aside and spent hours every day writing e-mails, filing paperwork and making phone calls to build support among other investors. "It basically became a full-time job," he said.
He found validation when RiskMetrics Group, an influential proxy adviser firm, issued a report on Sept. 11, the Thursday before the shareholder meeting, backing Sailors for election to the board over the other candidates. It was the shot of confidence Rod's slate needed.
Four days later, on Monday, Sept. 15, Napster announced the Best Buy deal. "The timing was no coincidence," Rod said.
Analysts aren't so sure the proxy battle forced the sale.
"Best Buy would have clearly done all the necessary due diligence before pulling the trigger on any sort of deal like this," said analyst Michael J. Olson with Piper Jaffray & Co. "I don't think it could have been cobbled together over the weekend."
But Rod points to support he picked up from some sizable shareholders as evidence that the proxy battle had momentum. Among his backers was Ryan Jacob, chief portfolio manager of L.A.-based Jacob Internet Fund, which owns over 1.3 million shares of Napster, or 2.77 percent of the company.
Though he said he doesn't have first-hand knowledge, Jacob believes that circumstantial evidence suggests the proxy fight exerted some pressure on Napster management.
"It might have made them more open to considering a sale on these kinds of terms," Jacob said.
Napster executives declined to discuss Rod's proxy battle and any relation it had to the sale. But in a statement, they said merger discussions started "well before" any of the actions taken by the dissident group.
Rod's home office is Spartan. A collection of vintage baseball cards that bear the likes of Willie Mays and Hank Aaron are displayed on one shelf, and on another sits a curved Persian sword with a gilded scabbard. He does his work on two computers, one a desktop and the other a laptop, beneath a painting of Al Pacino and Marlon Brando in a scene from "The Godfather."
His roots are modest. His parents emigrated from Iran in 1978, and both Rod and his brother were born here. His father is a school bus driver, his mother a homemaker.
At first, Rod toyed with the idea of becoming a politician or musician. But he settled on investing because he liked feeling he was part of something larger. That, and he thought it was an easy way to make money.
"I certainly thought it would be easier than it turned out to be," he said.
When he started out, Rod offered up his analysis of companies on Internet message boards while he bought shares with credit cards. He lost a lot of money.
"It was a ridiculous thing to do," he said.
Now, he's gotten professional. He spends more time researching companies and talking to chief executives. He makes over $100,000 a year and his next project is to build a social networking Web site specializing in investor issues.
When stressed, he meditates or plays a piano built in 1905 that he keeps in his living room.
Rod, who also sings and plays the guitar, dabbled in local bands but said of his music, "It's really more of a hobby."
The Napster proxy battle for Rod was instructive but exhausting. He felt he was doing shareholders a service by fighting on behalf of what he saw as a dramatically undervalued and mismanaged company.
"I wouldn't do this again," he said.
Unless, he added, he found another company that presented the same opportunity.
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