Ancora Advisors Responds to Autobytel (ABTL)

CLEVELAND, Nov. 10, 2014 /PRNewswire/ -- On November 10, 2014, Mr. Fred DiSanto, Chief Executive Officer and Executive Chairman sent a letter via email to Autobytel. A copy of the letter is attached below:

November 10, 2014

Sent via email

Autobytel Inc.
18872 MacArthur Blvd., Suite 200
Irvine, CA 92612

Autobytel Inc. Board of Directors:

We are writing in response to Autobytel Chairman Michael Fuchs' letter dated November 3, 2014, and in regards to the Company's November 5th earnings release.  We are pleased that the Board has taken action in response to our previous letter, as evidence by some of the comments made by CEO Jeffrey Coats' comments on the earnings call.  In particular we strongly agree with the following statements made by Mr. Coats:

1. It makes sense that Autobytel should be part of a larger organization
2. Autobytel will begin repurchasing shares
3. Jeffrey Coats will personally buy stock

All three of these items would help create value for the Company's shareholders.  In fact, we encourage Autobytel's Board to increase the buyback authorization.

On the other hand, we strongly disagree with the Board's decision that now is not the appropriate time to explore the sale of the Company.  In our previous letter to the Autobytel Board of Directors we detailed why we felt the shares were significantly undervalued and what they would be worth in a sale today.  To reiterate, if Autobytel were to explore a sale we believe the company could be worth approximately 2.0x where it's trading today.  The recent wave of consolidation activity should be evidence enough that there is a well-capitalized pool of prospective buyers for the company.

Consider the following data-points:

• Acknowledgement by CEO Jeffrey Coats that it makes sense for Autobytel to be part of a larger organization (which was entirely our point in the previous letter in regards to scale deficiencies)
• In the words of Mr. Coats, Autobytel's high quality sales leads "are now once again being acknowledged as the gold standard"
• The significant discount Autobytel's shares are trading at relative to the Company's publicly traded comparables as well as transaction comps

As shareholders we were happy to hear that Autobytel sales leads are the gold standard today, however, accepting that statement at face value, it begs the questions then why are Autobytel's shares valued at such a steep discount to its competitors?  We believe the following factors are the primary drivers for the Company's discounted share price:

• Autobytel is lacks the appropriate scale to be an independent public company
• Poor corporate governance, including excessive executive compensation and shareholder unfriendly bylaws
• Difficulty for institutions to take and hold meaningful positions in the stock –Autobytel's high market beta, and the inability for institutional investors to take positions greater than 4.9%
• Lack of management credibility – including recent poor acquisition history as evidenced by the stock's performance since the AutoUSA deal, and lack of ownership alignment between shareholders and management

Although we encourage Mr. Coats to directly purchase shares, we would be remiss not to mention the excessive compensation Jeffrey Coats has received since taking the helm of Autobytel. 

Over the past 5 years CEO Jeffrey Coats has been compensated at an average annual rate of approximately $930,000.  That is an outrageous sum for a company of Autobytel's size, and perhaps even more offensive is that despite the fact Jeffrey Coats has been CEO since the end of 2008, he is still collecting a relocation and lodging "allowance" on an annual basis.  This is an executive who stepped into the role as CEO from the Board, and was not an industry expert that was recruited for the position as part of a competitive process.  Despite the excessive compensation Jeffrey Coats has received since taking the helm, he has purchased a total of only $30,378 worth of stock over this period of time. 

We not only encourage Jeffrey Coats to buy shares in the Company, but we also propose that the Board adjust Mr. Coats compensation so that all incentive compensation, including housing "allowances" be converted from cash to stock going forward so that at the very least ongoing capital allocation decisions will be executed with the appropriate prudence that greater levels of purchased ownership would likely instill in Mr. Coats.  As a reminder with the AutoUSA acquisition, which Mr. Coats referred to as an "unequivocally positive" event for Autobytel, the stock before the deal was announced was trading at $14.12 per share only to eventually bottom out at $7.99 once the shareholders had fully digested the realities of AutoUSA's integration.

Considering the concern the shareholder base would have with Autobytel engaging in ongoing acquisition activity, we were not pleased by the announcement of a shelf registration.  Mr. Coats stated that the Company has no plans to raise capital but that having a shelf available was "prudent corporate finance planning".  Without debating the merits of that comment, it goes without saying at the current discounted share price, it would be irresponsible of management and the Board to even contemplate raising equity.  For example, Jeffrey Coats stated that the 2010 acquisition of Cyber Ventures and Autotropolis was a success, yet those deals came at an expensive price to shareholders with material levels of equity dilution.

In response to Mr. Fuchs' notification that our request to purchase shares above 4.9% of the Company's total outstanding shares was not considered by the Board due to a procedural deficiency, we have separately sent notice to the Board following the specific guidelines of section 30 of the Tax Benefit Preservation Plan to acquire additional shares that would bring Ancora Advisors LLC ownership of Autobytel up to 9.9%.  We were well aware that our request to purchase shares above 4.9% wasn't a formal request for exemption, yet we had assumed the Board would have responded to the merits of the request itself, rather than avoid responding under the guise of proper procedure.  To be clear, the Board should grant Ancora this exemption, as the purchase of additional shares will not place Autobytel's NOLs at risk of impairment.  The time elapsed since the adoption of the plan provides ample buffer from the 50% change of control trigger. 

We will continue to evaluate all strategic options, including potentially seeking board representation, and despite our ongoing disagreements, we believe the Company is beginning to take the right steps to address the discount gap.  We encourage the Board to consider and implement the suggestions included in this letter to maximize shareholder value. 

Sincerely,

Fred DiSanto
Chief Executive Officer and Executive Chairman
Ancora Advisors LLC

About Ancora Advisors

Ancora Advisors LLC is a registered investment adviser with the Securities and Exchange Commission of the United States.  Ancora offers comprehensive investment solutions for institutions and individuals in the areas of fixed income, equities, global asset allocation, alternative investments and retirement plans.  A more detailed description of the company, its management and practices are contained in its "Firm Brochure" (Form ADV, Part 2A). A copy of this form may be received by contacting the company at: 6060 Parkland Boulevard, Suite 200 Cleveland, Ohio 44124, Phone: 216-825-4000, or by visiting the website, www.ancora.net/adv

SOURCE Ancora Advisors

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