Two major stakeholders have fallen out of love with the management of Spark Networks Inc., known for its JDate and ChristianMingle matchmaking services.
First, it was Osmium Partners, a Greenbrae investment firm that began an attack on the West L.A. company’s management last month. Then last week, 402 Capital, an Omaha, Neb., hedge fund, joined in the call to change the way Spark operates and to replace a majority of board members at its annual meeting this month.
Lance Kimmel, a securities attorney at Brentwood’s SEC Law Firm who follows proxy battles, noted that 402’s involvement is significant.
“That’s some indication to me that this is not just Osmium griping,” he said. “There’s other professional money in this stock that is unhappy enough to vote for this change.”
Spark’s stock lost nearly half its value in the past year, from a high of $8.92 a year ago to close at $4.65 on May 28.
Osmium, a hedge fund that has also invested in ZipRealty Inc. and VitaCost Inc. in an activist role, is now Spark’s largest shareholder, with a 14 percent stake in the company, while 402 Capital holds 13 percent.
In a proxy statement last month, Osmium said it was unhappy with management’s performance; the level of executive pay; and the results of operations, which it said are trailing competitors such Match.com. The money manager noted that the company has been shelling out more in marketing for its Christian sites than it has been earning in revenue from them.
Osmium laid out a plan to squeeze more value out of the company and nominated four Osmium stakeholders, including founder and managing partner John Lewis, to replace Spark Chairman and Chief Executive Greg Liberman and three other board members at the upcoming annual meeting June 18. If successful, Osmium would have effective control of the company.
“If properly led by a highly motivated board, we believe Spark Networks can be worth much more than the current market price,” Osmium said in the filing.
Liberman and Lewis declined to comment for this article. Representatives of 402 did not respond to a request for comment.
After Osmium’s initial attack last month and other critical statements by the firm, Liberman issued a statement to other shareholders saying Osmium’s attempt to take over the company was not in the best interest of shareholders.
“We believe the value of your investment in Spark is under serious assault,” he wrote. “We believe Osmium has shown a history of shallow deception, offered a plan that lacks any substance, brings no relevant experience to the table and – most importantly – may have goals for its investment in Spark contrary to those of other stockholders.”
Some precedent
Osmium first invested in Spark in 2008. Two years later, the firm helped defeat an attempt to take the business private at $3.10 a share. The effort was led by Boston private equity firm Great Hill Partners, then the largest shareholder. Great Hill was disenchanted with the results of what was then Spark’s flagship site, JDate, a Jewish dating service. Great Hill has since sold off its stake in Spark, which has been placing more emphasis on its ChristianMingle site.
Lloyd Greif, chief executive of downtown L.A. investment banking firm Greif & Co., noted that Spark gained value after Osmium blocked the Great Hill bid. Shareholders must now decide whether they have confidence in the current board or place their faith in Osmium’s plan to make the company more profitable.
“They should look back at the record – has Osmium been accretive in value to shareholders?” he said.
Spark is bound to see changes moving forward, Greif said, and a possible outcome could include a takeover by a friendlier partner.
“This has put the board on notice that a large faction of shareholders are not happy,” he said. “That could catalyze change. This could also attract a white knight that the management would be more comfortable with that could take over.”
