Activist Investor Carl Icahn May Force Showdown at Nuance with 9.3 Percent Ownership Stake

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A Massachusetts-based speech technology solutions provider, and the technology behind Dragon speech-to-text software and Apple’s Siri and many other familiar voice technologies, has been suffering from underwhelming earnings as of late.  

After a disappointing earnings call in February, the company’s shares fell 19 percent in one day.

The company may have found a good friend – or an unpleasant enemy, depending on your perspective – in the form of billionaire investor Carl Icahn, founder of majority shareholder of Icahn Enterprises, a diversified holding company. Icahn is famous for acquiring significant portions of underperforming companies and pressuring them to make significant management changes, which has earned him the sobriquet of “activist investor.”

Yesterday, Icahn revealed that he now owns 9.3 percent of Nuance, according to the Boston Globe.

The “enemy” prediction by the Boston Globe is due to the reputation of Nuance’s chief executive, Paul Ricci, who has been described as “combative” and “ego-bruising,” much of this criticism based on Nuance’s unpleasant acquisition of Cambridge, Mass.-based competitor Vlingo. Industry analyst Walt Tetschner has described Ricci as a “hard-nosed manager,” and critics and former employees have alleged that Ricci used threats and expensive litigation to wear down competitors.

Ricci vs. Icahn could wind up being the best hostile takeover show of the year.

Disappointed stockholders are likely brightening up on the news, however: after the announcement of Icahn’s stake, Nuance’s shares rose 5.70 percent Tuesday to close at $21.33. This would value the overall company at $6.75 billion, with Icahn’s share at $625 million.

Analyst Tom Roderick told CNBC that Icahn’s involvement could go one of four ways: 1) lobbying for changes in corporate structure, like changes to executive compensation or a reduction in M&A activity; 2) waging a proxy battle for control of the board and the management team; 3) pushing to maximize value by divesting business segments; and 4) evaluating the potential for an outright sale of the company.

As the smartphone and device market continues to expand, and we move into the phase that’s been called “The Internet of Things” – the integration of Web browsers into home management systems, cars, appliances and nearly anything else that can be bettered with information – speech technology will become even more critical. Beyond asking your phone for directions, as with Siri, in the near future we may be asking our televisions to change programs, our cars to turn down the heat and our smart meters to start the dishwasher when the electric rates go off-peak.

Speech recognition technology such as that from Nuance, which is arguably one of the most important players in the speech technology industry, will become the foundation on which much of this “smart” technology is built.

An underperforming Nuance isn’t well positioned to take advantage of these market opportunities, and a mistake-prone management may well wind up holding the company’s stellar technology hostage to poor decisions.

As a final thought, it’ll be interesting to see Apple’s take on this move by Icahn. Apple has a great deal invested in Nuance technology, both literally and figuratively, and it has never been a company to stand aside and let its best interests’ fall where they may.




Edited by Braden Becker
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