Former Icahn President Makes Bid for Rosetta Stone

Steve Kanaval |

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Russell D. Glass heads RDG Capital Fund and today made a bid for Rosetta Stone Inc. ($RST) sending shares higher by 20% in morning trading. His footprint made an impression on share price today when it became known he put RST in play. Heady traders know he was taught well by renowned activist Carl Icahn as he sets his sights on language sector stock Rosetta Stone.

When Good Stocks Decline in Bull Markets, Activists Emerge

Shares of Rosetta Stone are down 35% from highs of $10 so far in 2015, and they’re getting the first of a nice bounce today, trading back near $7. It was time for Mr. Glass and his namesake firm RDG Capital to act, which they did with the quiet force they are known for on Wall Street. “Obviously I have my own personal style,” Mr. Glass said in a recent NY Times article. “I speak more softly, but still carry a big stick.”

Mr. Glass and his fellow activists have been increasingly active over the last year, prodding companies to change their strategies to bolster shareholder value. Carl C. Icahn, Mr. Glass’s onetime boss, has helped spur Genzyme’s $20.1 billion sale to Sanofi-Aventis, and has spoken out against a half-dozen companies like Motorola ($MSI) Mobility.

After years of betting on merger outcomes at L.F. Rothschild and Kidder Peabody, Mr. Glass joined Mr. Icahn’s firm in 1998 and worked as its president for four years. [DB1] He then struck out on his own. His current firm, RDG, employs four investment professionals. “Carl’s been a mentor to me in recognizing that being a value investor can also mean being a proactive shareholder,” Mr. Glass said.

Rosetta Stone is Smaller than you Think

Shares of RST have sunk to lows not seen in years, and the value of the entire company was near $150M before today’s rally. Clearly, RDG Capital thinks this valuation is way too low, and I agree. Just taking a look at industry multiples and current cash flow, Mr. Glass will get some piggy back investors who will go along for the ride and strengthen their bid in the stock day-to-day, but this is a long, drawn out process where RDG meets with the board of directors to determine if the takeover will be hostile or friendly. This is happening now, and Rosetta Stone’s board said this morning that they “will carefully evaluate the expression of interest.” Kendell Moore, a spokeswoman for Rosetta, declined to comment beyond the statement. Either way, that $150M valuation will never be seen again unless there is some poison pill which keeps management in place and protects the current BOD.

Activist investing has taken much criticism, but in reality it keeps management and the board honest and seeks to assist shareholders when a wonderful brand like Rosetta Stone sinks below the poverty line. Expect to see shares back above $10 at some point in the future, and do not rule out a merger/takeover in a space that is ripe for this. The worst may be over for Rosetta, so say Hello to Mr. Glass in any language you choose!

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Companies

Symbol Name Price Change % Volume
RST Rosetta Stone Inc. 8.11 -0.06 -0.73 39,155

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