Acacia Research Corporation is one of the oldest publicly-traded patent licensing specialists still in operation today. Their business model is as straightforward as they come in the licensing business. They partner with inventors and innovative companies, take ownership of the intellectual property through their various subsidiaries, enforce that intellectual property to secure licensees, and then share the proceeds with their partners. Of course, Acacia was not immune to the issues plaguing patent owners over the past several years. Acacia’s share price fell nearly 87% over the past five years.
Just before their 2018 Annual Meeting, Sidus Investment Management and BLR Partners launched a campaign to get their hand-selected nominees added to the board of directors. Touting their status as one of Acacia’s largest shareholders, with 4.6%, their “open letter” complaining about the lack of performance and their concerns to management falling on deaf ears:
Despite our very significant ownership position, our repeated attempts to privately address our concerns with the Company in a constructive manner have been fruitless. Unfortunately, the incumbent Board and management team rebuffed our efforts, leaving us with no choice but to nominate two highly-qualified independent stockholder representatives, Alfred V. Tobia Jr. and Clifford Press, for election at the upcoming 2018 Annual Meeting.
Our concerns with Acacia’s governance and strategic direction have coincided with the appointment of G. Louis Graziadio, III as Executive Chairman of the Board on August 1, 2016 and the subsequent shift in Acacia’s business model. In fact, since his appointment as Executive Chairman, Acacia’s stock price has declined by approximately 41% while the NASDAQ Composite Index has appreciated by approximately 36%.
Flash forward to July, and Sidius/BLR’s campaign was successful, as Press and Tobia Jr. now sit on the board. Most recently, on July 25th, two Acacia board members publicly resigned apparently as a direct result of the new board members. William S. Anderson, chair of Acacia’s Nominating and Governance Committee resigned after over a decade of service on Acacia’s board. Acacia also lost Compensation Committee chair Paul Falzone, who had just joined in March 2018. Anderson did not mince words in his resignation letter:
Recently, assertions have been made by BLR Partners LP and by newly elected directors Clifford Press and Al Tobia criticizing the prior actions and decisions of the incumbent board. I do not believe it serves any useful purpose at this time to address these assertions at length; however, to the extent such actions are directed at me, I categorically deny and dispute them.
Many of the statements made by Clifford and Al in recent board meetings and calls are not constructive and have created, in my view, a needlessly difficult and confrontational environment for the board of Acacia Research Corporation (“Acacia”) to do its work productively on behalf of the shareholders. In addition, it is my understanding that Clifford and Al made clear recently what many of us had suspected, that they do not have a disclosed strategic plan for the Company and that they will actively oppose any transformational transaction like the one currently in front of the board.
In view of the above, I have come to the difficult decision that the current environment in which the board is operating has made it untenable for me to continue serving on the board. Accordingly, effective as of the date of this letter, I hereby resign as a director of Acacia, including any positions on any committees of Acacia.
Falzone offered similar sentiments about the “acrimonious” environment resulting from Sidius/BLR’s successful campaign:
However, immediately following the election of Clifford Press and Al Tobia, the board environment became unnecessarily acrimonious and difficult. As a result, I no longer believe it is an environment in which we would be able to thoughtfully evaluate and structure an acquisition or merger with any valuable business. My sentiments were crystalized during a call with the board last Friday when I asked Clifford and Al whether they had any strategic plan for Acacia going forward. Clifford responded that they did not have a plan, that they were not interested in a transformative transaction and would in fact adamantly oppose one. It is therefore clear to me that the original reasons I joined the board are no longer realistic options for Acacia’s future.
These departures should not be at all surprising, given Sidius/BLR’s direct attack on the nominating and compensation committees. In their public statements, the investors criticized the CEO position going unfilled for two and a half years and openly questioned “whether a search process ever truly began.” They also alleged that Acacia’s compensation plan enabled “certain of the Company’s directors … to receive direct participation in hand-picked assets of Acacia.”
Acacia’s decline since 2013 cannot be blamed on any one factor entirely. However, the fact that many others in the licensing business are surviving and even thriving in the current market is proof that, with the right direction and leadership, Acacia can become successful again. Whether the new board members will provide that leadership remains to be seen.