Icahn’s Next Move: Break-Up Or Outright Sale of Nuance

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Nuance Communications Inc. (NASDAQ:NUAN) recently announced its decision to provide two board seats for the group of activist investor, Carl Icahn, as part of a standstill agreement. Icahn’s group of investment funds owns 16.9 percent stake in the speech recognition and digital imaging company.

Nuance Communication Logo

Brett Icahn and David Schrechter, co-manager of Sargon portfolio for Icahn Capital, were appointed to serve as independent directors of Nuance Communications Inc. (NASDAQ:NUAN) representing Icahn Enterprises LP (NASDAQ:IEP) and its affiliate investment funds.

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Nuance has the right strategy

In a statement yesterday, Bret and David expressed confidence that Nuance Communications Inc. (NASDAQ:NUAN) has the right strategy in place and they will work with the board and management of the company to continue enhancing shareholder value. According to them, the company has numerous and promising growth opportunities.

Under the standstill agreement, Icahn’s group agreed not to acquire a 20 percent stake or more of the outstanding shares of Nuance Communications Inc. (NASDAQ:NUAN), and not to solicit any proxy votes prior to the 2014 annual shareholders meeting. Brett and David will be included in the slate of nominees for the board during the annual meeting.

Stifel analysts Tom Roderick and Gur Talpaz believed that Nuance Communications Inc. (NASDAQ:NUAN) made the decision to appease Icahn’s group, and release some pressure after implementing its shareholder rights plan in August. According to the analysts, the decision of the company is not surprising, because some of its actions proved more shareholder-friendly over the previous months.

In addition, Roderick and Talpaz said, “We suspect the move is also a subtle acknowledgement that fundamentals should not be expected to recover immediately as further deterioration of the top line prospects would have been cause to give Mr. Icahn even more leverage in our mind.” The analysts have a hold rating for the shares of Nuance Communication.

Icahn’s next move

On the other hand, Daniel Ives, analyst at FBR Capital Markets in New York speculated that Icahn’s next move might include pushing for a new chief executive officer, breaking up the businesses, or an outright sale of Nuance Communications Inc. (NASDAQ:NUAN). Ives said, “Given the fundamental weakness of Nuance over the past few quarters, we believe Icahn has many potential scenarios.”

Nuance reported a 9.5 percent revenue growth

In August, Nuance Communications Inc. (NASDAQ:NUAN) reported a 9.5 percent revenue growth in its third quarter financial statement. The company said its recurring businesses demonstrate increasing market penetration, and the company is in the position to boost its growth next year. The company’s health care solutions and enterprise business rose by 29.1 percent and 5.9 percent, respectively, in the third quarter compared in the same period a year ago. However, its mobile and consumer business fell by 16.2 percent.


UPDATE: Sources familiar with the matter have told ValueWalk that Brett Icahn has spoken with investment bankers about a sale. Icahn is opting for a sale currently, not for a break-up. Susan Gordon, spokeswoman for Icahn Partners, did not respond to a request for comment.

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