By any measure Tuesday December 6 was an extraordinary day for Synchronoss Technologies’ shareholders and employees.

 

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They woke up owning a stake in a company with a market capitalization above $2.2 billion, whose core software enabled consumers to activate, synchronize and store their mobile phone data.

By day’s end, however, Bridgewater, N.J.-based Synchronoss had purchased IntraLinks, an unprofitable data-room developer for almost twice its then share price and said that it had struck a deal to sell its legacy business, the mobile-phone activation unit, in two stages — 70% immediately and the 30% remainder over the course of the next year. Topping it off, Stephen Waldis, the company’s founder and chief executive, took the unusual move of stepping down to let Ron Hovsepian, IntraLinks’ CEO, run the newly combined venture, though he’s remaining on the board of directors with the title of Executive Chairman.

Synchronoss marketed the effort as “Accelerating a Strategic Transformation“; investors just called their broker and sold, sending the stock price to $42.59 from $49 the day before, and erasing more than $290 million in market capitalization.

Waldis, on a February 8 conference call with analysts, heralded the arrival of Synchronoss 3.0, an era that he sees as rich with cross-selling opportunities to businesses (as opposed to retail phone activation), more revenue diversification and a focus on higher-margin, faster-growing businesses like so-called white-label cloud storage.

In the main, investors haven’t warmed up to this vision, with the market cap dropping another $550 million to about $1.36 billion since the big day.

Investor confidence couldn’t have been bolstered when the merger’s proxy agreement disclosed Waldis had spent over half of 2016 seeking to depart his job, with IntraLinks’ Hovsepian brushing off executive recruiters working for Synchronoss as far back as May. He became more receptive to Synchronoss when later overtures evolved towards buying IntraLinks, which given his 2.21 million share stake, led to an almost $28 million windfall (as laid out on page five of the company’s 2015 Proxy.)

Concern over management’s vision for the business may prove to be the least of shareholder concerns as Synchronoss’ own documents reveal there is a great deal the public hasn’t been told about key aspects of its so-called Strategic Transformation.

For example, in 2006 the parent company of Sequential Technology International, the Activation unit’s purchaser, was disclosed as a related party because Waldis and a group of his then-Synchronoss colleagues owned equity in it. Moreover, management’s comments about the reason for the sale, as well as the justification for the $146 million price tag, have been baffling.

Whatever the motivations behind the Activation unit’s sale, Synchronoss’ own filings suggest that Waldis’ friends are in a position where it’s nearly impossible for them to lose money; the company’s public shareholders can say no such thing.

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Synchronoss’ public statements about the Activation unit’s buyer are incomplete, at best.

The Sequential Technology International portrayed in the company’s conference calls and press releases sounds like a standard corporate buyer, chosen after some consideration among a number of different options.

That’s not remotely the case.

To start, the Southern Investigative Reporting Foundation could not locate STI in any corporate registry or database — it’s a corporate shell, formed in early November, 2016 whose website was registered by John Methfessel, a former neighbor of Stephen Waldis and an early-stage Synchronoss investor.

The first indication that there was more to the STI story than brief mentions in opaque press-releases came from Stifel, Nicholas’ Tom Roderick, a research analyst who published a December 20 research note revealing that STI was a unit of Omniglobe International L.L.C. In his note, Roderick cited his own research, as well Synchronoss’ December 7 filings, as being helpful to his analysis.

It’s unclear, however, what the December 7 filings illuminated, since they don’t mention Omniglobe and only briefly reference STI as being “a new company.” The Southern Investigative Reporting Foundation tried to ask him but a Stifel spokeswoman said Roderick wouldn’t be made available for comment.

So what is Omniglobe International?

It’s a business process outsourcing company (often abbreviated to “BPO”) that handles non-essential tasks for Synchronoss’ Activation unit. Specifically, through offices in the Philippines and India, Omniglobe provides phone activation customer service for Synchronoss’ AT&T contract.

In its June 2006 initial public offering prospectus, Synchronoss disclosed that Omniglobe was a related party, a legal term of art that in this case means that four of its officers had an investment in Omniglobe, and would benefit financially from doing business with it. (As detailed on page 74 of the prospectus, then-CEO Waldis had a 12.23 percent “indirect equity interest in Omniglobe,” former chief financial officer Lawrence Irving and former chief technology officer David Berry both had 2.58 percent and current president and chief operating officer Robert Garcia had 1.29 percent.)

These investments were made through Rumson Hitters L.L.C., a Delaware holding company that in turn owned a piece of Omniglobe. For awhile it was money well-spent: Between March 2004 and June 30, 2006, according to page 74 of the prospectus, Waldis’ investment yielded $153,655 in distributions from Omniglobe.

But the relationship must have raised a red flag somewhere since the prospectus–which doesn’t elaborate on the matter–does note that as of June 30, 2006 other, undisclosed members of Rumson Hitters had bought out the four executives, and that no one then at the company had a stake in the holding company or Omniglobe.

(“Rumson Hitters” is an inside joke among the families of several of Synchronoss’ initial founders like Waldis and his fellow Seton University Alum Tom Miller–the phrase is used on Miller’s Facebook page–referencing the affluent N.J. riverside town of Rumson where Miller lives.)

Daniel Ives, Synchronoss’ vice-president of finance and development, told the Southern Investigative Reporting Foundation that Rumson Hitters was formed “to support the BPO business of Synchronoss” as it was getting started, prior to the IPO. He was emphatic that it has no ownership links to company management and should be viewed as “an unrelated third-party.”

He declined to name the owners of Rumson Hitters but speaking more generally about the sale to STI said, “I get it. This is a complex transaction and people have a lot of questions.”

There isn’t much publicly available discussing Omniglobe International but a December 2006 press release identified veteran telecom entrepreneur Jaswinder Matharu as its president and chairman.

Reached at his Potomac, Maryland home, Matharu confirmed to the Southern Investigative Reporting Foundation that Omniglobe was STI’s owner and that it had purchased a 70% stake in Synchronoss’ Activation unit. He said he expected to eventually complete the purchase for the balance of the unit “over the next year” with a loan from Goldman Sachs — Synchronoss’ longtime lead investment-banker and co-arranger on the $900 million term loan used to purchase Intralinks.

When questioned about Omniglobe’s ownership structure, Matharu said he had a 50% stake and that “the Rumson Hitters hold the other 50%.” According to their registration filings, both Omniglobe and Rumson Hitters were registered in Delaware on the same day, March 5, 2004.

“I’m reluctant to speak about [the Rumson Hitters] part of the ownership group because they had to restructure things a little

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