Spark Networks Inc (NYSE:LOV)’s largest shareholder has called for change at the company. Besides for the activism angle, and the fact that the fund is value oriented, since this is a large holding of Whitney Tilson (who is on fire this year), we thought readers would be interested. Below is the 88 page letter from Osmium Partners, LLC regarding their plan for Spark Networks Inc (NYSE:LOV).

Osmium Partners, LLC Spark Networks Inc (NYSE:LOV) proxy challenge

Value focused fund launched in 2002.

Long-term oriented with a three to five year holding period.

 

Located in Greenbrae, California.

Operational

Under-performance

Typically focus on companies with market capitalizations between $50mn to $1bn in US equity markets.

As owners, we privately engage with board members and management with constructive strategies to enhance shareholder value.
? Osmium Partners is currently Spark Networks’ largest shareholder, owning 14.2.% of the Company.

Long-term oriented owner since 2008.

History of shareholder advocacy—challenged and successfully prevented a $3.10 per share going private proposal by the company’s largest shareholder Great Hill Partners in 2010.

Why Change is Needed
1) Lack of Value-Creating Leadership: After eight years as either Chief Operating Officer (August 2005), President (June 2006), CEO (April 2011) and now Chairman of the Board (December 2013), Mr. Greg Liberman has had more than sufficient time to create a reasonable and balanced strategy to generate value for shareholders. However, we believe he has failed to do so and that shareholders continue to suffer.

2) Peer Underperformance: Since his appointment as President on June 15, 2006 through May 13, 2014, Spark’s market cap has fallen by 30% vs. an increase of 167.3% by First Trust Dow Jones Internet Index Fund, effectively underperforming by 197%.

Rapidly Deteriorating Fundamentals: Stock is near a 52 week low, both Christian and Jewish networks are shrinking and the company is rapidly burning cash.

Spark’s Crown Jewel is Deteriorating: This 1Q14, shareholders saw

Lowest Jewish Networks revenue in any quarter since 2006.

Lowest Jewish Networks contribution margin in any quarter since 2006.

Lowest Jewish Networks subscribers in any quarter since 2006.

Failure to Oversee Business:

In March 2014, after investing approximately $115 million of shareholders’ capital at the time, Mr. Liberman admitted on 4Q13 call that he did not fully understand the “true value” of this direct marketing investment.

Only after reporting the worst Jewish Networks’ quarterly results in revenue, contribution and subscribers since 2006 on 1Q14 call, Mr. Liberman admitted to launching the first JDate rebranding program in 17 years.

Limited Disclosures: Despite spending approximately 115% of the current market capitalization on direct marketing for Christian Networks, only recently and in the midst of a proxy fight has management disclosed metrics. These new disclosures were still insufficient in enabling investors to understand true return on capital and customer acquisition costs.

spark networks LOV
spark networks LOV

Full letter can be found below

Osmium- LOV Presentation (PDF

Osmium- LOV Presentation (1)