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Robert Leitz has asked the Board to publish and circulate the following position statement with respect to the agenda of Perion’s extraordinary general meeting of shareholders on September 26, 2016:

Position Statement

I propose to vote “AGAINST” Proposal One and “FOR” Proposal Two (Mr. Shilo’s request).

I was disappointed to read the Board’s reply to Mr. Shilo’s position paper. Given the Board’s counter proposal and reply, it is obvious the Board is trying to a) minimize the likelihood that the Board is de-staggered, b) buy time to protect incumbent directors and managers for as long as possible, and c) discredit significant shareholder Mr. Shilo – the founder of the company’s core legacy asset.

I fully agree with Mr. Shilo’s position statement. I believe the current share price adequately reflects the business’ deterioration, management’s track record of horrific capital allocation and lack of credibility.

The Board claims the company’s fundamentals are in good shape, but the company’s situation is actually deteriorating.

  • In the twelve months ended June 30, 2016, Perion generated cumulated net losses of $93 million.
  • Management has not disclosed Undertone’s performance since its acquisition but indicated that “[Undertone] is performing below expectations”.
  • Management has stated Search revenues are stabilizing but has not disclosed how profitable (if at all) Search is or will be.
  • Management has never provided any meaningful transparency on the performance of Mr. Mandelbaum’s other acquisitions, presumably because they all failed to meet expectations.

The Board claims it is in “Perion’s best interests for Mr. Mandelbaum to remain and continue to execute our business strategy” despite his obvious and extended track record of spectacular value-destruction at Perion:

  • During his reign, Mr. Mandelbaum has spent about $1 billion on acquisitions (thereof $120 million in cash) and the diluted share count went from 10 million to 81 million. Today, Perion’s market cap/enterprise value is only about $100-120 million.
  • In November 2015, the company was trading at around $140 million in net cash (mostly generated by liquidating ClientConnect – a company paid for in shares). In December, Mr. Mandelbaum decided to bet all that cash (and more) on Undertone, a transaction that apparently offers few synergies with Perion’s other assets and that has failed to convince the market.
  • Mandelbaum has frequently changed the narrative around his strategy and acquisitions. Given his track record, why would anybody believe his latest talk about “high impact ads”?

The Board is paying management excessively and in gross disregard of actual performance and shareholders’ interests:

  • The CEO’s compensation is based on revenue and EBIT, not on shareholder value creation.
  • Over the last 2.5 years, stock-based compensation was $26 million, despite losses of $31 million.
  • In H1 2016, the fully diluted share count increased by 11% (8 million shares) and the company reported stock-based compensation of $4 million, despite losses of $5 million.

In April 2016, I personally met with the Board to share my views but no action was taken. Worse, the Board’s recent statement confirms the disturbing loyalty towards Mr. Mandelbaum and its inability to initiate change – which runs counter to the interest of the company’s owners.

Robert Leitz
iolite Partners
Zurich, Switzerland

Position Paper – iolite Partners – R Leitz