The Monster Deal

On August 24, 2016, in HRExaminer, by John Sumser

2016-08-24 hrexaminer monster worldwide sq 200px.jpg

The post-deal Monster will never be a top tier job board again. The current deal is the best that stockholders can expect. And, we’ve lost another industry giant. Things are changing fast.

At the bottom of this article, you’ll find the letter Monster (MWW) sent its shareholders today (Wednesday, Aug 24, 2016)). In it, Monster’s CEO, Tim Yates, offers arguments to rebut the letter published by the company’s largest shareholder, MNG. Over the past year, Monster’s stock price fell by nearly 50%. (The company was repurchasing its shares for $6.04 a year ago.)

It’s a big deal that the company lost that much equity in an up market with the strongest hiring climate in the past decade. You might imagine that MNG is not the only shareholder who is unhappy. This was a thriving company not that long ago. The board should take responsibility for the damage it did to shareholder portfolios.

MNG laid out a plan to revitalize the company in its letter:

  • Reduce expenses by $100-$150 million through implementation of operational best practices
  • Monetize non-core/underperforming assets that are not being valued at all in current stock price
  • Reduce capital expenditures to be more in-line with competitors and other digital companies
  • Simplify the product offering and increase sales productivity
  • Focus marketing efforts on B2B customer acquisition and candidate acquisition, with a focus on ROI, and execute a re-branding campaign to attract millennials

Monster’s response?

  • We’ve already cut $100M in operating costs
  • We’ve already cut capital expenditures by 50%
  • We’ve already divested some underperforming assets
  • Competition is intensifying from larger, better financed competitors

Or, as incompetent management teams often say, “That would be really, really hard.”

But, the damage is already done. By agreeing to the Randstad offer, Monster’s board guaranteed the death of the operation. The immediate impact will be a loss of the 33% of the business that the company has with Randstad competitors. That will cause enough turmoil in product development, sales, and, customer service to rupture operations for a year. The decline in posting volume will cause a decline in job hunter traffic. If the brand were a blimp, the logo would survive while the airship crashed.

That said, scuttling the deal would be a complete disaster for everyone involved. While MNG’s assertions about required changes are pretty accurate, Monster’s response (below) gives you a sense of the begrudging pace with which they’d be enacted. MNG is in no position to walk in and start slashing. Getting to MNG’s agenda would involve years of grueling board meetings. While the argument illuminates the trouble with recalcitrant boards and upper management teams, it doesn’t actually offer an actionable solution

Irresponsible boards who are trying to bail out of the problems they created often manufacture these sorts of dilemmas. This is why selling at the bottom is a bad idea. Engineer the deal, collect the payout, get on with the next victim.

Generally, the purchaser never buys what the seller is selling. The purchaser sees potential and growth from her perspective. The seller sees the value of the assets from their perspective What makes a sale work is when those two views of the future can be imagined without one interrupting the other.

The post-deal Monster will never be a top tier job board again. While the brand will retain a generation’s worth of luster, the simultaneous declines in operations and traffic (see above) will reduce the value that corporate customers receive over time. The downward spiral will continue until Monster settles in to its new role as the job board of one of the world’s largest staffing companies.

In other words, the current deal is the best that stockholders can expect. And, we’ve lost another industry giant. Things are changing fast.

You might disagree.

 

(You might want to take a look at our original note on the transaction. The core notion, that a fully featured staffing company must have an at scale job board, still holds true.)


August 24, 2016

Dear Stockholder,

On behalf of your Board of Directors, I am writing in response to a letter from MediaNews Group (“MNG”), contained in an August 19, 2016 filing. The Board appreciates and will always consider input from Monster’s shareholders during this important time. Having considered the positions in MNG’s letter, and the inaccuracies therein, there are a number of key considerations of which shareholders should be aware.

MNG asserts that they are Monster’s largest stockholder, having very recently acquired their position as evidenced by their regulatory filings. Nevertheless, MNG has never discussed, or attempted to discuss, the issues raised in their letter with Monster’s management or Board. On the contrary, and in a reckless way, MNG is attempting to defeat a transaction that would provide all of you with immediate and certain cash value of $3.40 per share, representing a 22.7% premium to Monster’s closing stock price on August 8, 2016, the last trading day prior to the announcement, and a 29.4% premium over the 90-day average stock price.

We will be publicly filing and making available to you the background and circumstances surrounding the Board’s decision to enter into the merger agreement with Randstad North America, Inc. (“Randstad”). In the interim, there are important points we would like to highlight.

MNG is not offering you anything for your shares. They are asking you to turn down a significant cash premium NOW in the hope of a possibility that your shares may be worth more sometime in the future.

MNG’s hopes are pinned on incorrect and unsupportable assumptions.

MNG calls for draconian expense cuts, ignoring that more than $100 million of annual operating expenses have already been cut over the past several years.
MNG calls for reducing capital expenditures, ignoring that that capital expenditures have already been cut by about 50% over the past several years; capital expenditures at the current reduced levels are needed for product enhancements to meet current, intensified competition.
MNG calls for divesting assets, ignoring that non-core or underperforming assets have already been divested.
MNG ignores that competition is intensifying from companies that are owned by substantially larger and better capitalized parents that can afford to compete aggressively on product pricing in pursuit of market share.

As will be explained to you in greater detail in our filing, your Board has recognized that enhancing Monster’s competitive position in the current environment will require continued investment, and we will likely be operating in a low growth environment with substantial margin pressure for a number of years.

A number of our analysts have recognized the challenges that Monster faces and the benefits of a transaction. For example, in its most recent post-announcement report, Avondale Partners said:

“We contend that termination of the Randstad offer would be disastrous for MWW shareholders.” (August 22, 2016)

We concluded that our stockholders would benefit from receiving a cash premium now and entered into an agreement with Randstad. We remind you that this agreement provides that we would only be required to pay a fee of 2.7% of equity value if we terminated it in favor of a superior proposal.

You will be receiving more detailed information from both Monster and Randstad. We believe that after reviewing this information, you will agree with us and support the transaction.

Sincerely,

Tim Yates
CEO, CFO and Director
Monster Worldwide, Inc.



 
Read previous post:
HRExaminer Radio: Episode #185: Eric Friedman

Eric is the founder and CEO of eSkill Corporation, whose cloud-based product customizes skills tests to fit nearly any job...

Close