Gilead Capital Expresses Grave Concerns With Monotype Proxy Statement and Highlights Board's Failure to Protect Shareholders' Interests

NEW YORK, Aug. 28, 2019 /PRNewswire/ -- Gilead Capital LP ("Gilead Capital"), a long-term shareholder of Monotype Imaging Holdings Inc. (NASDAQ: TYPE) ("Monotype" or the "Company"), today responded to the release of the Company's proxy statement dated August 26, 2019, regarding the proposed sale of Monotype to the private equity firm HGGC for $19.85 per share. 

Gilead Capital believes that rather than explaining why the proposed sale offers "tremendous value," the proxy statement instead validates our concerns, as stated in our most recent letter, about the Board's dereliction of its fiduciary duties and further undermines the Board's credibility. Based on Gilead Capital's review, it appears the Board:

• Decided to sell the company at a heavily discounted price despite management's 2019 EBITDA forecast of $79 million being ahead of both consensus ($73.2 million) and management's own guidance ($71.5-$78.5 million)
• Failed to form an independent special committee to negotiate the sale of the Company and allowed the CEO, who is wholly conflicted with regard to the transaction in light of the disclosed nearly $8mm payout to him, to play a significant role in the negotiation of the transaction
• By waiting to form a "Transaction Committee," which shared the same legal and financial advisers as used in the sale process, until the day it requested a "last and final offer" from HGGC, the Board failed to rigorously assess reasonable alternatives or to provide independent oversight of the sale process
• Demonstrated its short-termism and failure to appreciate the Company's intrinsic value by citing short-term and non-fundamental risks such as quarterly volatility, changes in revenue recognition rules, and the prospect of a 2008-magnitude recession as reasons it approved this proposed sale
• Rushed to sign the deal before announcing second-quarter earnings in order to ensure the sale price was at a "significant premium" to the stock price, presumably fearing that the second-quarter earnings beat would lift the stock price closer to or above the deal price
• Provided conflicting timelines regarding the 2018 sale process in SEC disclosures
• The Company filed a proxy statement regarding Starboard Value's director nominations on January 31, 2018, in which the Company stated that "[i]n July 2017, well before Starboard filed its 13D … the Board decided to engage J.P. Morgan to explore… strategic and financial alternatives." Yet the most recent preliminary proxy statement indicated that the Company did not discuss with J.P. Morgan "the possibility of J.P. Morgan acting as its financial advisor in evaluating strategic alternatives" until August 2017 and did not engage the firm until September 22, 2017, concurrent with the Company's "extensive discussions" with Starboard. At a minimum, this discrepancy raises questions about the trustworthiness of the Company's SEC disclosure.

As a result, the proxy statement has left us with more questions than we had before, including:

• Why decide to sell our Company when the stock price is at a 6-year low and the Company's own projections are significantly higher than consensus?
• When and why did the Board terminate its stock buyback program?  What has fundamentally changed in the business's long-term outlook to cause the Board to switch from being a buyer to a seller?
• Why did the CFO resign in the middle of heated negotiations, and did that negatively impact the final deal price?
• Why didn't the Board form an independent special committee to oversee the sale process and evaluate alternatives?
• Why did the Board issue "single trigger" Company PSU awards to the CEO and allow him to potentially make $7.7 million from this change of control transaction?
• If management's financial projections support the commitment of more than $625 million of debt ($15.25 per share!), what prevents the Company from utilizing this significant financial capacity to preserve and maximize long-term value as a public entity?
• Why does the Board believe that leveraging the Company at nearly 8x EBITDA will give it "added flexibility"?
• Why won't shareholders be better off voting down the deal, changing the Board and management, divesting Olapic, reducing overhead, and repurchasing shares at a large discount to intrinsic value?

So that all shareholders can make a fully informed vote, we reiterate our original demand that the Board hold a conference call to answer shareholder questions like those above, discuss the Company's recent business performance, and explain its rationale for proposing a sale of the Company at the same price it executed its most recent buybacks.

We continue to see this proposed sale as an inappropriate transfer of value from public market investors to management and its preferred private buyer. Gilead Capital currently intends to vote against this transaction.

About Gilead Capital LP

Gilead Capital LP is an investment adviser focused on long-term investments in high-quality public small-cap companies in North America, Europe, and Australia.  Gilead Capital pursues a Leadership Investing strategy, supporting its portfolio companies by constructively engaging with management teams and boards of directors to elevate governance and enhance long-term value for the benefit of all shareholders.

SOURCE Gilead Capital LP