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RealD (RLD): Starboard Value Urges Company to Reply to Its Acquisition Proposal

Peter Feld, a managing partner at Jeffrey Smith‘s Starboard Value has sent a new letter to the CEO and board of directors of RealD (NYSE:RLD), as a new filing with the Securities and Exchange Commission showed. In the letter, the investor urged the CEO and the board to respond to his proposal to acquire the company that was made at the beginning of the month. Starboard currently owns 4.95 million shares of RealD, which represent almost 10% of the company.

Jeff Smith

At the beginning of October, Starboard offerred to purchase RealD (NYSE:RLD) at a price of $12.00 per share. The price represented a premium of 29% at the closing price on October 1.

“Unfortunately, despite multiple attempts to engage constructively with you to discuss our Proposal, to date you have neither provided us with any meaningful feedback, nor shown any willingness to engage with us, regarding our Proposal,” Starboard said in the letter.

The fund added that they even tried to propose a meeting between Starboard and RealD (NYSE:RLD) to discuss the proposal. However, the company has not replied to that proposal either. This is despite the fact, that right after Starboard submitted its proposal, the company issued a statement saying that it will examine the proposal.

“This is both surprising and disappointing considering that the Company stated in its brief three-sentence response to our Proposal on October 1, 2014 that “RealD is always open to constructive discussions about opportunities to increase stockholder value,” the letter added.

Starboard initiated a stake in the company during the first quarter of the year, holding initially 2.25 million shares. During the second quarter, the stake was increased to 3.55 million shares. At the beginning of September, Starboard disclosed in a filing raising its position to 4.55 million shares.

In its previous letter, Starboard said that even though RealD (NYSE:RLD) has a potential, it will be hard for the company to succeed while still being publicly traded. Moreover, the investor pointed out that with the stock losing around 42% since the IPO, shareholders have been disappointed, especially taking into account that some of its peers have performed much better.

The full text of the letter is available here:

Starboard Letter to RealD Oct. 29

The market positively received the news regarding Starboard’s proposal, sending the stock well above $11 per share, although it is still trading below the IPO price. Another shareholder of RealD is Brian Bares’ Bares Capital Management, which held some 8.16 million shares at the end of June, the stake amassing over 8.5% of the fund’s equity portfolio.

With the company currently keeping its silence without giving a straight answer regarding the proposal, there is a chance that we might see a new proxy fight on the line. However, taking into account RealD’s underperformance pointed out by Starboard, the chances are high that other shareholders will support Mr. Smith’s intentions.

Mr. Smith has done some excellent moves recently. A couple of weeks ago, Starboard succeeded to appoint its entire slate of candidates and replace the board of directors of Darden Restaurants, Inc. (NYSE:DRI), ending a long proxy fight with the previous board and management. Later, Starboard raised its stake in the company to 8.7%.

Also, at the end of September, Mr. Smith sent a letter to  Yahoo! Inc. (NASDAQ:YHOO)’s CEO Marissa Mayer proposing different steps to increase the value of the company’s core business and take advantage of its equity investments in Alibaba Group Holding Ltd (NYSE:BABA) and Yahoo Japan such as a spin-off of these investments and a merger with AOL, Inc. (NYSE:AOL).

Disclosure: none

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