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.
Indaba, which owns 9.6% of Benefitfocus’ stock, is dialing up the pressure after weeks of private negotiations that ended when the company last month named a new director and said an independent chairman will be appointed at the annual meeting.
While the hedge fund had asked for new, diverse, independent board members and for the company to unwind financial transactions between the company and an entity controlled by a current director, it objected to these specific moves.
“They suggest only a wink to cleaning up the mess, with no real commitment to value-enhancing change,” said the letter, which was 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 did not immediately respond to a request for comment.
Indaba blames the board for Benefitfocus’ sluggish stock returns, heavy turnover in the executive suite, and poor capital allocation.
Since 2015, Benefitfocus has had three chief executives and six chief financial officers.
And while Benefitfocus’ shares have jumped 18.6% in the last five days, in the longer term, they are off. In the 52 weeks to Feb. 5, Benefitfocus shares 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, including two people who identify as African-American, as possible directors.
The company in January said Doug Dennerline, who has been on the board since 2014, will become independent chairman of the board 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 also holds approximately 22.9% of Benefitfocus’ outstanding issue of the 1.25% convertible senior notes.
Lawyers and industry analysts have said that mergers and acquisitions are likely to play an increased role as investors push companies to perform better as the pandemic is expected to ease with the rollout of vaccines.