Activist Investor Calls on Yelp to Explore Sale
TCS Capital has 4%-plus stake in Yelp, asks recommendation site to consider merger with Angi
Activist investor TCS Capital Management has built a stake in Yelp YELP -0.67%decrease; red down pointing triangle and is calling on the service-recommendation site to explore strategic alternatives including a sale, according to people familiar with the matter.
TCS Capital owns more than 4% of the shares outstanding of Yelp’s common stock, making it one of the company’s five biggest shareholders, the people said. TCS Capital has been an investor in Yelp for most of the past five years, but the stake hasn’t been revealed publicly before.
TCS Capital believes that Yelp could be sold to another technology or media company or private-equity buyer, for at least $70 a share—or more than double the current stock price, according to a letter the fund’s founder and president, Eric Semler, plans to deliver to Yelp’s board Tuesday. The letter was seen by The Wall Street Journal.
Shares of Yelp, which has a market capitalization of about $2.2 billion, closed Monday at $32.52, off about 17% from a 52-week high of $39.26. The shares are down from a high of nearly $100 in 2014.
Semler also plans to tell Yelp’s board that his investment firm is prepared to make its own bid to acquire Yelp, with a group that includes an executive who has served as chief executive officer of a public company in the same business, the letter says, without naming the executive.
Alternatively, Yelp could explore a tax-free merger with online-services company Angi, formerly known as Angie’s List, Semler plans to say in the letter.
Semler, who founded TCS Capital in 2001, won a board seat at Angie’s List in 2016 after his firm called on the business-review platform to explore strategic alternatives, including a sale to IAC’s consumer-review site HomeAdvisor. IAC in 2015 had made an unsolicited buyout offer for Angie’s List, but the proposal was rebuffed.
IAC ultimately acquired Angie’s List and combined it with HomeAdvisor to form a new publicly traded company, Angi, in 2017.
Angi went on to acquire Handy Technologies, an on-demand platform that helps match people looking for household services with professionals, in 2018. Angi has a market capitalization of about $1.6 billion as of Monday.
Semler believes a combination of Yelp and Angi would yield “enormous revenue synergies and cost savings that could ultimately double the value of Yelp’s shares” and create a powerhouse player in what he describes as a booming market for home services.
Yelp’s longstanding chief executive, Jeremy Stoppelman, co-founded the business in 2004 and has served as CEO for nearly two decades.
Semler believes that Stoppelman has received “unconscionable compensation packages” and that Yelp’s board of directors lacks industry experience, according to the letter.
“Yelp maintains an active dialogue with our shareholders and values constructive feedback on our business and ways to create value,” a Yelp spokesperson said.
Despite ongoing pressures in the broader advertising market, Yelp has managed to keep increasing sales. The company reported first-quarter revenue of $312 million, up 13% from the same period a year earlier. It booked year-over-year growth of roughly 25% in its biggest and fastest-growing category by revenue, Home Services.
The first quarter of 2023 brought fewer so-called proxy battles than many had expected coming into this year, as activists agreed to more truces and companies got proactive in making changes such as cost cuts and executive shake-ups.
Overall, the number of activist campaigns in the U.S. dropped 30% in the first quarter from a year earlier, according to an analysis by bankers at Barclays, making it the slowest start to the year in the past five years.
But in recent weeks, activity has started to pick back up, hinting at what could end up being a busy summer season.
The Journal reported that Engaged Capital was planning to run a proxy fight for three board seats at Shake Shack before the activist investor reached an agreement with the burger chain almost immediately thereafter.
Meantime, Elliott Investment Management earlier this month published a letter asking Goodyear Tire & Rubber to appoint five new independent directors and find ways to untap value in its retail-store network. Elliott also recently revealed a stake in NRG Energy and is asking for a strategic review of the power company’s home-services unit, Vivint.
And a boardroom brawl between Carl Icahn and biotech giant Illumina is also expected to head to a shareholder vote later this week.