Nuance’s not-so-nuanced response to Icahn

Contact: Brenon Daly

Even though Nuance Communications is a company that does a lot of buying, the serial shopper has made it clear that it doesn’t want to be on the other side of a transaction. The speech recognition vendor, which has spent more than $1bn on a dozen deals over the past two years, announced earlier this week that it would be putting a ‘shareholder rights plan’ in place by the end of the month. The defensive measure (also known as a ‘poison pill’) effectively scotches any unwanted M&A approaches.

In other words, exactly the type of unwanted approach the company is likely to get from its largest shareholder, who has a history of making unwanted M&A approaches to tech companies. Carl Ichan has steadily snapped up Nuance stock. His stake, according to the most recent SEC filing, is now a mountainous 51 million shares, or 16% of the company.

With Icahn unlikely to play the role of spoiler in the planned Dell LBO, we suspect that he’ll have more time to spend on his other activist investments very soon. Probably on the top of his hit list is Nuance, as the company has already put up subpar numbers in two quarters this year. Nuance stock is down about 15% in 2013.

Unlike Ichan’s earlier stirrings against BEA Systems or Lawson Software, however, there isn’t an obvious single acquirer for Nuance. The reason stems largely from the fact that the Burlington, Massachusetts-based company has four separate business units. (Collectively, those divisions should produce about $1.7bn in annual sales when Nuance wraps its fiscal year at the end of next month.)

Instead, we could imagine that Icahn might push for a breakup of Nuance, arguing that the value of the individual units – on their own – is higher than the current $7.4bn enterprise value of the company. After all, Icahn has experience in that sort of agitation too, having helped spur a breakup of tech giant Motorola at the beginning of 2011.

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