Fireworks Set to Begin at Nuance (NUAN) With Icahn Lighting the Fuse

August 30, 2013 8:21 AM EDT
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Price: $15.74 -0.19%

Rating Summary:
    8 Buy, 9 Hold, 1 Sell

Rating Trend: Up Up

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    Up: 30 | Down: 30 | New: 23
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After the close, Carl Icahn, in a move widely expected, changed his filing status on Nuance Communications (NASDAQ: NUAN) from passive (13G) to active (13D) in addition to boosting his stake to 52,437,750, or 16.9%.

FBR Capital analyst Daniel Ives weighed in on the move and said he sees many potential scenarios playing out, including: 1) board representation, 2) the removal of the current CEO, 3) a potential split up/divestiture of Nuance's businesses, and 4) the ultimate sale of the company further down the road.

In the filing, Icahn noted that he may "engage in discussions with the Issuer regarding the possibility of the addition of persons satisfactory to the Reporting Persons to the Board of Directors of the Issuer." Ives notes that the company elects board directors annually and shareholders can remove directors with or without cause with a majority of votes. However, "no action can be taken without a meeting by written consent, and shareholders cannot call special meetings, therefore it is clear that Icahn is now focused on the company's annual meeting (most likely in the January 2014 timeframe)." The proxy fight proposals or nominations must be received between September 27, 2013 and October 27, 2013.

The poison pill adopted by the company last week is activated when a given shareholder acquires over 20% of the company without board approval.

The analyst believes Icahn's stake has put a floor on the stock price although the company's fundamental profile "has deteriorated as the core growth engines (healthcare and especially mobile) have been disappointing given a number of company specific execution and secular trends that have negatively impacted deal flow."

The most likely first step for Icahn is board representation, the analyst notes. Next steps for Icahn could be addressing the management team, the company feverish acquisition strategy, and multiple business units under one roof. While a sale of the company is a possibility, "potential management changes and strategic changes in the company's business are the near-term focus for enhancing shareholder value for Nuance," the analyst said. "Nuance is not a "broken company" in our opinion and Icahn could be the missing piece in helping get this company back to the growth story it used to be by having the right strategy and execution in place."

The firm is maintaining a Market Perform rating and price target of $18.

For an analyst ratings summary and ratings history on Nuance Communications click here. For more ratings news on Nuance Communications click here.

Shares of Nuance Communications closed at $18.31 yesterday.

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