CLEVELAND--(BUSINESS WIRE)--Ancora Holdings, Inc. (together with its affiliates, “Ancora”), which collectively with the other participants in its solicitation beneficially owns approximately 3.4% of the outstanding common stock of Blucora, Inc. (NASDAQ: BCOR) (“Blucora” or the “Company”), today issued the below letter to stockholders in response to the presentation issued by the Company on March 31, 2021.
As a reminder, Ancora is seeking to elect Frederick D. DiSanto, Cindy Schulze Flynn, Robert D. MacKinlay and Kimberly Smith Spacek to Blucora’s ten-member Board of Directors at the Company’s Annual Meeting of Stockholders on April 21, 2021. Ancora urges Blucora’s stockholders to visit www.ABetterBlucora.com to obtain important information, including instructions for how to vote on the WHITE Proxy Card.
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April 5, 2021
Fellow Stockholders,
Ancora Holdings, Inc. (together with its affiliates, “Ancora”) has carefully reviewed the presentation issued by Blucora, Inc. (“Blucora” or the “Company”) and its Board of Directors (the “Board”) on March 31st. As we assessed the 105-page document that was riddled with inaccurate, personal attacks against Ancora and its nominees, we tried instead to focus on the substantive matters at hand:
- The Board’s governance actions and policies;
- The Board’s preferred strategy;
- The Board’s personnel decisions;
- The Board’s refreshment efforts, and;
- The Board’s engagement with stockholders.
Unfortunately, we cannot see how any investor could give the incumbents passing grades in these areas based on Blucora’s dozens of pages of spin and revisionist history. After beginning the presentation by belittling our 3.4% equity position despite the Board’s own meager stockholdings and miscasting our director candidates, the Company proceeded to matter-of-factly tell stockholders that the Board had a “four-day strategy session” in late 2019 that led to a “refined strategy” still dependent upon unarticulated synergies between Avantax and TaxAct. The Company subsequently cited the COVID-19 pandemic as an excuse on the one hand while touting a cherry-picked set of six-month and one-year return metrics as evidence of progress on the other hand.
Simply put, stockholders should not be misled by the incumbents’ attempts to mask Blucora’s suspect governance practices and conveniently recast their same synergy-focused strategy as new. The reality is that the four underqualified directors that we are seeking to replace bear significant responsibility for the anti-stockholder actions and value-destructive decisions detailed throughout this letter. Georganne Proctor is Chair of the Board and a director since 2017, Steven Aldrich is Chair of the Nominating and Governance Committee and a director since 2017, Mary Zappone is Chair of the Audit Committee and a director since 2017, and John MacIlwaine is a director since 2018. While Blucora will likely claim that replacing these directors would destabilize the Board’s leadership, we believe it would only strengthen the Board to remove individuals who have presided over:
| X | Poor Shareholder Engagement – No independent director would meet with Ancora until March 27, 2021 and no meaningful effort was made by this Board to avoid this contest. |
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| X | Poor Executive Compensation Decisions – The Board paid Chief Executive Officer Chris Walters more than $8 million in 2020 despite his insufficient public company experience and lack of industry expertise. The Board subsequently granted Mr. Walters and other executives large equity awards during the depths of the pandemic without requiring them to ever adjust their base salaries. |
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| X | Poor Succession Planning – The Board thought it was in stockholders’ best interests to appoint the Company’s longest serving director as Chief Executive Officer without running a credible, well-communicated search process to bring in a proven wealth management or tax services leader. |
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| X | Poor Board Refreshment – The Board’s self-directed refresh has led to a boardroom that lacks both ownership perspectives and relevant wealth management sector experience, particularly as it relates to the mass market and middle market opportunities that drive the majority of Avantax’s revenue. |
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| X | Poor Strategic Planning – The Company’s six-year-old strategy has led to dramatic underperformance versus peers and negative returns over multiple horizons. Even after devoting significant resources to a 105-page presentation, the Board has failed to provide stockholders with concrete synergy targets for Avantax and TaxAct. This is almost as alarming as the Board trying to take credit for changes to TaxAct that were publicly proposed by the prior management team. |
We urge all stockholders to just focus on the facts – not Blucora’s diversions or sideshows – as they determine which slate is more likely to help the Company derive enhanced value from its wealth management and tax services assets. We firmly believe that an impartial review of the facts pertaining to Blucora and this election contest will yield two conclusions:
- Change is needed in the Company’s boardroom to prevent the impairment of long-term value and ignite a lasting turnaround; and
- Ancora’s four director candidates, who collectively possess sorely-needed wealth and tax expertise, are the right change agents.
As noted, we contend it will immediately strengthen Blucora and its Board if Frederick D. DiSanto, Cindy Schulze Flynn, Robert D. MacKinlay and Kimberly Smith Spacek are elected at the 2021 Annual Meeting of Stockholders.
Reality: The Board has Refused to Engage in Good Faith and Uphold the Tenets of Sound Corporate Governance
Since Ancora’s initial outreach last year, Blucora has not engaged with us in an honest and open manner. When we privately conveyed legitimate concerns about the lack of relevant wealth management experience on the Board, the Company rushed to add a new director with no financial services background. The Company did not make a sincere attempt to avert an election contest and settle with us this past winter, opting instead to accuse Ancora of being a competitor even though we offer different products to a different clientele through different marketing channels. We would have explained these facts to the Board months ago, but no independent member of the Board would speak to us until 9 days ago.
It is important to underscore that this Board has overseen alarmingly poor corporate governance. The Company amended its Bylaws in June 2020 to make nominating directors prohibitively expensive and to require unreasonable information that could potentially be misused in a contested election. The amended Bylaws required all stockholder-nominated director candidates to consent to being named on the Company’s proxy card. The Company did this despite knowing that a stockholder nominating its own director candidates would seek to use its own proxy statement to solicit the election of its candidates. When Ancora offered to provide such consents if Blucora agreed to deliver us consents from its candidates to be named with ours on a universal proxy card, the Company refused. We were then forced to sue Blucora just to ensure our nomination would not be invalidated for failing to provide such consents.
The Bylaws also empowered the Board to send us approximately a dozen letters requiring largely irrelevant information to be delivered within a strict five business day deadline and to update all information set forth in our nomination notice or nominee questionnaires, regardless of materiality, within a strict two business day deadline. The failure to comply with such deadlines could empower the Company to invalidate our nomination completely.
When Blucora’s Chairwoman finally engaged with us for the first time on March 27th, she did not come prepared with any proposal that could end the current election contest. When we repeated our winter offer to settle for just two seats and the formation of a strategic review committee, we had to wait another four days for the Board to once again reject this proposal and merely offer to add – rather than replace – one director to be selected mutually from a pool of candidates. This Board does not need to increase to 11 directors and continue to include individuals who have seemingly sanctioned this type of poor governance.
Reality: The Board has Presided Over Unjustifiable Compensation Decisions
It is troubling that the Board awarded equity grants to several executives in May 2020, when the pandemic was raging and Blucora’s stock was trading near a multi-year low at approximately $12. The Company contends that its “Compensation Committee felt that it was imperative to retain these NEOs and ensure that they were incentivized to lead the Company through the COVID-19 pandemic while focusing on financial, operational and strategic objectives of the Company.”1 We question how retention concerns existed when Blucora’s executives had just received base salary raises in late 2019 and nearly every business in the economy was facing similar macro headwinds due to the pandemic. Notably, Blucora’s executives had those base salary raises “honored throughout 2020 notwithstanding the impact of the pandemic.”2
In May 2020, the Board also awarded Chief Executive Officer Chris Walters another equity grant equal to 20% of what he received upon being appointed to the role just three-and-a-half months earlier. According to Blucora, the Compensation Committee felt “providing Mr. Walters with an equity award of this size effectively balanced its desire to help retain the Company’s CEO while also maintaining compensation parity with the Company’s other employees.”3 This seems like a dubious explanation designed to conceal the Board’s poorly-formed decision to overcompensate a recently-appointed Chief Executive Officer, who was selected from within and posed no flight risk during a global pandemic. It should not be lost on stockholders that Mr. Walters was previously Chair of the Compensation Committee and was presumably well-versed in acceptable practices and norms.
Although the Board is now referring to its cosmetic “reorganization” as the basis for these compensation moves, we fail to see how May 2020 was an appropriate time to increase the pay for current executives who just received salary bumps and, in the case of Mr. Walters, a sizable sign-on equity award. A seemingly superficial “reorganization” that shuffled around executives and their roles is not a justification for ill-timed awards. In our view, the Board’s compensation decisions reinforce how out of touch some of the directors are with the Company’s average employee and its greatest asset: the Avantax financial professional. We imagine Avantax financial professionals will take note of the fact that the Board was authorizing raises for management while the average advisor was making less money due to Blucora’s newly imposed fees.
Reality: The Board is Not Taking the Right Decisive Actions and is Clearly Committed to the Same Six-Year-Old Strategy
Despite repeatedly promoting a “refined strategy” throughout its March 31st presentation, it is clear to us that Blucora is making the same old bet on illusory synergies – or what it now calls “cross-over opportunities” or “cross-over benefits” – between Avantax and TaxAct. We contend that there is nothing materially new about the Company’s strategy other than trying to use new terminology. Modifying the TaxAct pricing structure or pulling back on Avantax acquisitions does not represent a fresh strategic direction or pivot, especially given the Company remains hamstrung by a large debt load.
We continue to fear that the Board and management are remaining doggedly committed to their business model and synergy-focused strategy because it justifies their lofty compensation and roles.
Reality: The Board’s Presentation is Heavy on Spin and Lacks Concrete Synergy Targets
We assumed Blucora’s March 31st presentation would need to include specific objectives or quantifiable key performance indicators. But despite ample time and resources, the presentation is short on the specifics.
If “cross-over opportunities” are so readily achievable, why are the paths to realizing them not laid out in a detailed fashion within the presentation? Why are the financial benefits associated with the “cross-over opportunities” not outlined? The Board and management are either unable or unwilling to provide stockholders with these important answers.
If leadership truly believed in the merits of Blucora’s plan and the promise of these purported “cross-over opportunities,” we have to imagine the independent directors would purchase stock on the open market and increase their aggregate holdings to at least 0.5% or 0.75%. Instead, the Board has bought a de minimis amount of stock on the open market and prefers to rely on equity grants to amass stock positions.
Reality: Blucora’s Price Modification to TaxAct was Introduced by the Prior Management Team – Not During the Board’s Late 2019 Strategy Session
The Board wants stockholders to believe that it identified Avantax’s price issues during its purported four-day strategy session in late 2019. This, however, simply is not true. Blucora’s prior management team had been planning in early 2019 to eventually reopen a free mode of TaxAct to boost users. In fact, former Chief Executive Officer John Clendening specifically mentioned the tactical shift on Blucora’s Q1 2019 earnings call held on May 8, 2019.
“ […] it's hard to grow units at the same time as raising prices. Now that we have built a healthier business with better lifetime value and attractive economics on monetized units, we believe we can now afford [to ] open back up to free.”
Reality: The Board’s Strategy has Resulted in Sustained Underperformance and Value Erosion
Since Blucora embarked on its current strategy in October 2015, the Company’s stock has appreciated only 7.43% while the Russell 2000 is up 72.10% and S&P Composite 1500 Financials is up 73.72%.4 Many of Blucora’s peers have also dramatically outperformed the Company across the same period.
The Company’s stock is actually down a 34.66% since it reaffirmed its commitment to a synergy-focused strategy in October 2017.5 Notably, three of the four directors we are seeking to remove – Steve Aldrich, Georganne Proctor and Mary Zappone – were on the Board at that time.
In addition, the Company’s stock is down 32.41% since the conclusion of the purported 2019 strategy session.6 Notably, all four directors we are seeking to remove were on the Board for the strategy session that began in September 2019 and concluded in November 2019.
It is also important to highlight that Mr. Walters has also presided over negative returns since becoming Chief Executive Officer on January 30, 2020. Although he attained his executive role as the pandemic began, most of Blucora’s peers – including Envestnet, Inc., Virtus Investment Partners, Inc and Waddell & Reed Financial Inc. – have seen their stocks bounce back to at least pre-pandemic levels by now. We suspect that most of the stock price appreciation that Blucora has seen in recent months is due to Ancora investing significant capital in the Company and then commencing a public campaign. Blucora’s stock reached a six-month high of nearly $18 in the weeks following Ancora’s first public letter issued on February 25th.
Reality: The Board Failed to Recruit New, Highly-Qualified Leadership
Blucora’s contention that Mr. Walters is a new leader is unconvincing at best. In addition to being Blucora’s longest-tenured Board member, the Company has described Mr. Walters as being a long-term leader in developing and implementing its strategy.7 We believe the Board’s decision to quickly appoint Mr. Walters – a fellow director with no prior public company experience and no relevant background – as Chief Executive Officer in January 2020 further underscores the need for boardroom changes at Blucora.
Ancora doubts the veracity of Blucora’s claim that it ran a credible, wide-ranging external search for a Chief Executive Officer before selecting Mr. Walters. In fact, Blucora’s January 16, 2020 press release that announced Mr. Clendening’s departure – just days following a major acquisition – notes that the Board had already identified a successor. One has to imagine the Board could have interviewed many excellent Chief Executive Officer candidates from outside the organization if it actually ran an exhaustive process and made a search firm aware it was prepared to offer someone the $8.1 million compensation package ultimately bestowed on Mr. Walters in 2020. An appointment such as this is a flashing red light that signals insular governance.
It should be equally concerning to stockholders that the Board signed off on the appointment of Marc Mehlman as Chief Financial Officer, especially when taking into account that he is not a Certified Public Account, not an experienced public company executive and not an individual with any expertise in wealth management or tax preparation software. Mr. Mehlman, much like Mr. Walters, appears to come from the media and data world based on his prior 15-year stint at Thomson Reuters. While we will not judge his performance at Blucora from afar, we need to question whether he was the best choice for Blucora based on the Board’s process.
Reality: The Board Failed to Carry Out the Right Director Refresh Program, Resulting in a Lack of Relevant Wealth Management Experience
Blucora’s presentation boasts of a “thoughtful refreshment process,” yet the truth is that none of its four recent additions have the relevant wealth management experience needed in the boardroom. The Board seems to not understand that Avantax financial professionals are primarily serving the mass market and middle market, which are basically comprised of individuals and families with $150,000 or less in assets. This is why it is so painful for Avantax financial professionals when the Board authorizes direct-to-fund and paper fees that further erode their thin margins. These types of fees also make it difficult to compete with the likes of Ameriprise Financial or LPL Financial for great talent.
To underscore just how incompatible the current Board is with the Avantax model, consider the following about the four directors we are seeking to remove:
| X | Steven Aldrich – No stated wealth management experience. |
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| X | John MacIlwaine – No practical wealth management experience. Although it is true Mr. MacIlwaine held the position of Chief Technology Officer for Morgan Stanley’s private client group approximately 20 years ago, it does not appear he had any involvement in the wealth management division’s strategy or substantive experience engaging with advisors and/or their clients. |
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| X | Georganne Proctor – No practical wealth management experience. Although it is true Ms. Proctor held the position of Chief Financial Officer at TIAA-CREF approximately 11 years ago, it does not appear she had any involvement in the wealth management division’s strategy or substantive experience engaging with advisors and/or their clients. |
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| X | Mary Zappone – No stated wealth management experience. |
We contend that the other six members of the Board also either lack stated wealth management experience or possess the wrong type of wealth management experience. For instance, director Mark Ernst – who clearly has valuable tax industry knowledge – does not have a record of success in wealth management. During his tenure leading H&R Block, it was widely reported that H&R Block Financial Advisors failed to achieve requisite scale. The unit was promptly sold after Mr. Ernst’s departure, with former Chairman Richard C. Breeden publicly conceding it “simply did not have the size to be able to compete at the highest levels.”8
In light of the permanent impairment of value that could occur if Avantax continues to endure headcount losses, we believe it is critical that our director candidates are elected to the Board. Each member of our slate has direct experience either working with advisors or functioning as one. Blucora needs these types of perspectives from at least 40% of its ten-member Board.
Reality: The Board has Miscast Ancora and its Diverse Slate of Financial Services Experts in an Apparent Attempt to Mislead Stockholders
Blucora’s presentation goes out of its way to demean our 3.4% investment. It also crosses the lines of decency by spotlighting our nominees’ home neighborhoods on a map and misrepresenting their philanthropic interests. In addition, the presentation tries to character assassinate and smear Mr. DiSanto. The Company’s use of inflammatory phrases like “anger” and “backroom deal” on its slide about Mr. DiSanto represents a shameless attempt to miscast him in the eyes of proxy advisory firms and institutional funds. It is clear that Blucora wants to ignore his background as a successful financial advisor, deep experience on public boards of directors and stellar record as a philanthropist.
Without addressing the dozens of other distortions being peddled by Blucora, we do want to dispel some of the more absurd ones in a concise manner here:
BLUCORA DISTORTION |
REALITY |
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| X | Mr. DiSanto’s election would raise antitrust concerns. |
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| X | Mr. DiSanto does not have sales or marketing experience. |
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| X | Mr. DiSanto is over-boarded and committed to multiple executive and board-level responsibilities. |
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| X | Mr. DiSanto indicated that he thought Mr. Walters deserved more compensation. |
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| X | Ms. Flynn does not have tax or wealth management experience. |
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| X | Ms. Flynn’s role with Ancora Trust is a conflict. |
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| X | Mr. MacKinlay does not have tax experience involving public companies. |
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| X | Mr. MacKinlay does not have wealth management experience. |
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Ms. Spacek does not have wealth management experience. |
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| X | Ms. Spacek does not have executive leadership experience. |
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| X | Three of Ancora’s four nominees are “colleagues” from the Cleveland area. |
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| X | Ancora has pushed for an immediate sale of the TaxAct business. |
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| X | Now is not the time to sell TaxAct. |
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| X | A sale of TaxAct would present “capital deployment challenges.” |
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| X | Avantax financial professionals are broadly satisfied, and their level of satisfaction is increasing. |
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Reality: Ancora’s Diverse Slate of Financial Services Experts is Prepared to Enter the Boardroom in a Collegial, Professional Manner
If elected to the Board, our nominees will immediately put this contest behind them. Each of our director candidates will completely focused on building bridges and getting down to work alongside the remaining incumbents. They will help build a boardroom culture of collegiality, respect and thoughtful debate.
We truly believe their pedigrees and skillsets make them the right change agents at the right moment in time:
- Mr. DiSanto brings a deep understanding of the wealth management industry’s various client markets, important ownership perspectives and valuable corporate governance insight, including with respect to appropriate incentive compensation for executives.
- Ms. Flynn has two decades of experience holding c-level marketing and communications roles at publicly-traded financial services companies, whereat she helped wealth management and tax leaders develop and implement strategies for growing their brands and revenue streams.
- Mr. MacKinlay knows tax services and wealth management extremely well based on his two decades of experience at Cohen & Company, where he was National Managing Partner and drove hundreds of millions of dollars in client assets to SEQUOIA Financial Group. He also advised many public companies while at KPMG.
- Ms. Spacek has vast experience in the investment management, broker-dealer and broader financial services sectors from her time at Owl Creek Asset Management, Davidson Kempner Capital Management and ABN AMRO Bank. She understands business development, advisor and investor relations, and how to develop effective fee structures.
To learn more about our nominees and their views, we encourage you to review our recently-issued presentation that is available at www.ABetterBlucora.com.
Thank you for your engagement and support.
James Chadwick
Head of Alternatives & Portfolio Manager
Ancora Holdings, Inc.
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About Ancora
Ancora Holdings, Inc. is an employee owned, Cleveland, Ohio based holding company which wholly owns four separate and distinct SEC Registered Investment Advisers and a broker dealer. Ancora Advisors LLC specializes in customized portfolio management for individual investors, high net worth investors, investment companies (mutual funds), and institutions such as pension/profit sharing plans, corporations, charitable & “Not-for Profit” organizations, and unions. Ancora Family Wealth Advisors, LLC is a leading, regional investment and wealth advisor managing assets on behalf families and high net-worth individuals. Ancora Alternatives LLC specializes in pooled investments (hedge funds/investment limited partnerships). Ancora Retirement Plan Advisors, Inc. specializes in providing non-discretionary investment guidance for small and midsize employer sponsored retirement plans. Inverness Securities, LLC is a FINRA registered Broker Dealer.
1 Blucora’s 2020 proxy statement filed on March 11, 2021.
2 Blucora’s 2020 proxy statement filed on March 11, 2021.
3 Blucora’s 2020 proxy statement filed on March 11, 2021.
4 Return metrics are calculated based on the closing trading prices on October 13, 2015 (the day before Blucora announced the HD Vest acquisition) and the closing trading prices on December 31, 2020.
5 Return metric is calculated based on the closing trading price on October 26, 2017 (the day of the stated commitment via a press release) and the closing trading price on December 31, 2020.
6 Return metric is calculated based on the closing trading price on November 29, 2019 (the last trading day of the month) and the closing trading price on December 31, 2020.
7 Blucora’s 2019 proxy statement filed on April 9, 2020.
8 H&R Block press release dated August 12, 2008.