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Hedge fund Indaba pushes Benefitfocus to put itself up for sale

Stock Markets Feb 11, 2021 06:15PM ET
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© Reuters.

By Svea Herbst-Bayliss

BOSTON (Reuters) - Indaba Capital is pushing benefit management software company Benefitfocus (NASDAQ:BNFT) Inc to put itself up for sale after years of poor returns and high turnover in the executive suite, according to a letter the hedge fund sent to the company's board on Thursday.

Benefitfocus stock price jumped than 10% to trade at $17.31 after Indaba, which owns a stake of 9.6% dialed up the pressure after weeks of private negotiations that ended last month.

The company did name a new director and said an independent chairman will be appointed at the annual meeting. The hedge fund objected to these specific moves, although it had asked for new, diverse, independent board members and for the company to unwind financial transactions with an entity controlled by a current director.

"They suggest only a wink to cleaning up the mess, with no real commitment to value-enhancing change," said the letter, seen by Reuters.

Now the hedge fund, which oversees $1.5 billion in assets, is urging a "good faith sales process," adding "the current leadership has lost the privilege of running Benefitfocus."

Benefitfocus said it is committed to generating substantial value for shareholders, is open to constructive suggestions, and routinely reviews strategic priorities and opportunities.

"We have also taken steps to enhance our corporate governance, improve our financial flexibility, bolster our balance sheet and strengthen our leadership team," the company said in a statement.

Indaba blames the board for Benefitfocus' sluggish stock returns, heavy executive turnover and poor capital allocation.

Since 2015, Benefitfocus has had three chief executives and six chief financial officers.

Benefitfocus shares have jumped 18.6% in the last five days. But in the 52 weeks to Feb. 5, they dropped 23.7% while peers gained an average 55.7% and the Russell 2000 index gained 32.8%.

Over five years, Benefitfocus' stock has dropped 43% compared with a 527.5% gain for peers and a 126.6% gain in the Russell 2000 index.

While the hedge fund and company were holding talks, Indaba suggested three candidates for the board, including two African Americans.

The company in January said Doug Dennerline, who has been on the board since 2014, will become independent chairman while Mason Holland, the company's co-founder, will become chairman emeritus.

Indaba was founded in 2010 by former Farallon Capital Management partner Derek Schrier and has traditionally kept a lower profile making both stock and credit bets.

In addition to being one of Benefitfocus' largest stock owners, it holds approximately 22.9% of Benefitfocus' outstanding issue of the 1.25% convertible senior notes.

Lawyers and industry analysts have said mergers and acquisitions are likely to heat up as vaccine rollouts ease the pandemic and boost the economy and investors push companies to perform better.

Hedge fund Indaba pushes Benefitfocus to put itself up for sale

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