MONTCLAIR, N.J., May 17, 2022 (GLOBE NEWSWIRE) — 180 Degree Capital Corp. (NASDAQ:TURN) (“180” and the “Company”), today issued the following open letter to the Board of Directors and Preferred Stockholders of Comscore, Inc. (“SCOR”).
Board of Directors and Preferred Stockholders of Comscore, Inc.
180 Degree Capital Corp. is currently the fifth largest holder of SCOR’s common stock. As we have discussed in our prior private letters to the SCOR’s board, 180 Degree Capital Corp. is a publicly traded closed end fund focused on investing in microcap companies with a Graham and Dodd value and constructive activist approach. We seek to use our constructive activism to help our investee companies unlock value for all stakeholders, not just ourselves, nor one class of stock. We are issuing this public letter because unfortunately the Board of SCOR and its Preferred Stockholders, all of whom have seats on the Board of SCOR, missed an important opportunity to demonstrate that they are truly focused on unlocking value for all stakeholders of SCOR. Instead, the common stockholders have suffered significant near-term value destruction resulting from SCOR’s deletion from the Russell indices that could have been averted if all interests were aligned. We have included our prior letter delivered to you privately on April 5, 2022, for all to see.
For a bit of background for current and prospective investors reading this letter, SCOR’s capital structure currently has preferred and common stock outstanding. The holders of the preferred stock, Charter, Liberty Media and Cerberus, have the right to appoint six members to SCOR’s board, and the preferred holders receive approximately $15 million of dividends per year in aggregate as long as the preferred stock is outstanding. Additionally, the terms of the preferred stock allow for those holders to demand additional payments from the company beginning January 1, 2022, up to a cumulative payout between ordinary and special dividends of $100 million. Let’s be clear, there is no doubt in our, or likely the mind of any other shareholder, that the refinancing of the company led by these preferred holders in 2021 was a transformational event that could have enhanced the company’s prospects for success. Unfortunately, not only have we as common stockholders not seen the benefit, but we are also now experiencing the opposite. With the passage of time from this event, many stockholders, including ourselves, have voiced concerns that the continued existence of the preferred stock creates an incentive structure that has created a distinct misalignment between the differing owners of the business. For instance, the preferred stockholders are happy enough to collect their interest payments year after year knowing that in any sale of the company, they get paid back before any proceeds are distributed to common stockholders. In addition, SCOR may be obligated to obtain debt financing in order to effectuate the discussed above. This is a potentially onerous event for common stockholders. We are deeply concerned that the preferred holders can take a substantial amount of cash out of the company at any given time. We and other common stockholders would like to know what the current plan is regarding to this special dividend.
You might ask, why did we invest in SCOR knowing such terms were in place following the refinancing of the company. We believe SCOR is a data-rich company that is well positioned to grow as its business undergoes operational improvements. We view it as an interesting turnaround that trades at a valuation that is at a significant discount to every other company that it competes with. Most recently for example, Nielsen Holdings PLC (“NLSN”) agreed to be taken over by a consortium led by Elliot Management at a value for Nielsen of approximately 4.5x TTM revenue. SCOR currently trades at less than 1x of TTM revenue. While there are a number of financial metrics that, from a pure financial perspective, make NLSN look like a significantly better business than SCOR today, the company’s recent results show ongoing improvement and, to us, shouldn’t equate to that large of a difference in valuation. We wouldn’t own the stock if we didn’t think there was material upside as the company focuses on improving its income statement and overall operations. We also believed the new Board would strategically help the business, not just take cash out of the company.
This brings us back to alignment of interests and the missed opportunity for the Preferred Stockholders to demonstrate their commitment to building value for all stakeholders in SCOR. In our private letters, we proposed that the preferred stockholders convert a portion of their outstanding preferred stock into common stock so that the market capitalization based on outstanding shares of common stock would be above the threshold required to remain in the Russell indices. We recognize that the preferred stock has valuable rights and our recommendations included ways to compensate those holders for the rights they would give up upon conversion. Asking the preferred holders to give up those rights without compensation would not be fair, and it demonstrates our approach to working with all stakeholders to level the playing field.
As an aside, the first thing we did at 180 when we took over the company in 2017 was to convert the company from a business development company to a closed-end fund. That decision was solely made to benefit our common stockholders as it allowed us to significantly reduce operating expenses of the entity. The offset was that management could not be compensated with stock or stock options, so we as management were monetarily negatively impacted. We put our stockholders’ interests first. We believe it is important to “walk the walk” when asking other companies to make similar decisions.
Unfortunately, May 6, 2022, came and passed with no action by the preferred stockholders. We are now faced with a stock that has declined by over 50% this year and over 35% since the end of 2020, and will come out of the Russell indices. We as common stockholders are left to understand that SCOR is being run for the benefit of the preferred stockholders, not all stakeholders in the company. The Board and Preferred Stockholders knew of the issue and elected not to act. Nobody can force the Preferred Stockholders to act as there is no forcing mechanism, but they chose to do nothing. Which again, we repeat is their right.
For us, the Board and the Preferred Stockholders drew a line in the sand and have told the market that common stockholders cannot at this point expect to have appropriate representation. The Board intentionally presided over ensuring the stock would lose material value because of the Russell issue. So, while conversion or better aligning with stockholders is a choice for the Preferred Stockholders to make, it also tells the story of the type of stewardship we can expect from SCOR with the Preferred Stockholder representatives on SCOR’s Board.
Despite the fact that conversion was not something anyone could force to occur, that doesn’t give the Board the right to shirk your responsibilities of creating value for stockholders. As seen with Nielsen and others, the industry is ripe with M&A for companies in this space. What is the Board’s view of these transactions? Have you conducted a thorough strategic review process? How do you justify SCOR’s valuation with the value of every other company in the industry, and what are you doing about that? Ignoring the current industry dynamics because you wish to ensure you get paid dividends for the next three years is not following proper governance. You have intentionally allowed the stock price to drop, and that has far greater consequences for the business as it relates to employee morale, the ability to keep retain and hire talent, and the opportunity to use your stock as currency to grow the business faster. You are in your seats and are there to provide support for the management team that exists. In fact, it is apparent to us and all common stockholders that all you have done is make management’s job harder and more complicated. That is unacceptable.
As another example of serving preferred shareholder interests over common stockholders’ interests we note the following information from SCOR’s SEC filings:
Concurrent with the closing of the Transactions on March 10, 2021, the Company entered into a ten-year Data License Agreement (“DLA”) with Charter Communications Operating, LLC (“Charter Operating”), an affiliate of Charter. Under the DLA, Charter Operating will bill the Company for license fees according to a payment schedule that gradually increases from $10.0 million in the first year of the term to $32.3 million in the tenth year of the term. The Company recognizes expense for the license fees ratably over the term. A portion of the annual license fees is allocated to a base license comparable to the Company’s prior license with Charter Operating. The remaining fees are allocated to the additional data sets contemplated by the DLA and the designation and related endorsement of the Company as Charter Operating’s preferred data measurement partner for the term.
This agreement would have been acceptable except for the fact Charter is selling the same exact data to competitors of SCOR. I understand how that helps Charter get every industry participant to have access to its data, but how does that help SCOR? Using your preferred status to enter into an arm’s length transaction (and selling the same data to its competitors) is putting Charter first, not SCOR. That is incomprehensible to us and a violation of your duties to serve all stakeholders of SCOR. Additionally, the license fees are a significant amount of cash transferred from SCOR to one of its biggest holders (in addition…