Fonts might seem as common as air or water. You might not even think about them as you read this sentence. But they can be quite valuable: Consider the fight unfolding at Monotype Imaging.
The Woburn foundry behind some of the world’s best known fonts — Helvetica, Times New Roman, and Arial among them — is selling itself to a private equity firm. However, one of its biggest investors is arguing that the price significantly undervalues the business.
Gilead Capital’s managing partner, Jeffrey Strong, was upset by the July 26 announcement that Monotype’s leadership had agreed to sell the company for $19.85 a share, or $825 million. The buyer: HGGC, a California private equity firm cofounded by the former San Francisco 49ers quarterback Steve Young.
Monotype (ticker symbol TYPE) boasted that the price represented a premium of 23 percent over the previous day’s closing stock price. Cause for celebration? Maybe not: Strong says the company is worth $30 a share, roughly where the stock was trading in 2015.
Strong was flummoxed by the price, and rebuffed in his quest for answers.
So he went public on Tuesday with his frustrations, distributing a five-page letter accusing the company’s board of being derelict in its duty, and management of striking a sweetheart deal in a hasty and seemingly exclusive process.
He even went as far as to challenge the board to print the proxy for the deal in Comic Sans font, so “the world will see this process for the mockery that it is.” Ouch.
I think I know how he feels: Representatives of Monotype, which operates out of a nondescript office park, and of HGGC either declined to comment or didn’t respond to my inquiries.
So let’s go to the Securities and Exchange Commission filings about the deal. There, the explanation is brief, and about what you would expect: Becoming a private company, Monotype argues, will provide it significantly more flexibility to invest “in ways that deliver more value and improve the overall experience for our customers.”
Strong says Monotype’s leaders have been driven by short-term thinking. Private equity ownership might give the executive team more cover in that regard — no need to answer to Wall Street each quarter. But, Strong says, HGGC would also probably pile on debt, with its own financial demands. (He says Monotype has not disclosed how much of the deal would be financed with debt.)
This obviously isn’t the bounty Strong expected when he first invested in Monotype, through Gilead, two years ago. (Gilead, based in New York, is named after the Nebraska farm town near where Strong grew up.) At the time, the stock was trading in the high teens — roughly where it is now, after the HGGC deal was announced.
Gilead continued buy shares over the past two years, eventually accumulating more than 1 percent of the stock. Strong says he was encouraged by Monotype’s effort to expand from relying primarily on licensing fees to also promoting services for corporate users who want a unified appearance in their marketing materials.
This shift, he says, was just getting off the ground when the company’s board decided to sell.
Strong notes that better-than-expected second-quarter earnings probably would have boosted the company’s stock price — if those earnings hadn’t been announced on the same day as the HGGC sale. The company canceled its quarterly earnings call, adding to his frustrations about its transparency.
Strong says he has pressed Monotype for more information about its recent financial performance, so investors can better assess the long-term prospects. He hasn’t decided whether to wage a proxy campaign to block the sale, although he has heard from other investors who are also concerned about the price and the process.
Here’s one reason for Strong’s impatience: The “go-shop” period — a window of time for another buyer to approach — expires Aug. 25. After that, the breakup fee Monotype would pay if the deal with HGGC fails would double to nearly $25 million.
Monotype has changed owners numerous times over its 130-year-plus history, and its recent run as a public company dates to 2007. Strong must know he won’t get to see comic-book-style lettering in the proxy. But he’s determined not to let Monotype change hands again without pressing for answers about whether investors are getting the best deal for their money.