$KITD November 23 Ex CEO Proposes Buyout. By Saabira Chaudhuri
The former chief executive of KIT digital Inc. KITD +9.44% has accused the company of seeking to "scapegoat prior management" for its current problems and said he is prepared to lead a group to buy KIT for $193 million, an offer that comes two days after the software company said it would restate financial results due to accounting errors.
Kaleil Isaza Tuzman said he has reviewed a per-share all-cash offer of $3.75--an 81% premium over its Wednesday closing price--for KIT with "two large private equity groups who are interested in participating," and he believes he has the backing of some executives and others who would be key to execute a turnaround for KIT.
Shares tumbled 57% to 89 cents in recent premarket trading. Through Wednesday's close, the stock has fallen 77% in the past 12 months.
The company wasn't able to immediately provide comment.
Earlier this week, KIT said it would restate its financial results since due to accounting errors and was considering strategic options, including financing transactions and a possible sale of the company, as it expects to continue to incur significant cash expenditures.
The maker of on-demand software will restate its financial results for 2009 through 2011, as well as the first two quarters of 2012, due to errors related to the recognition of revenue of certain perpetual license agreements it said were entered by the prior management team in 2010 and 2011.
Mr. Tuzman stepped down as KIT's CEO at the end of March, saying he would work exclusively as the company's chairman. However, the following month he also resigned from that post for undisclosed reasons.
In his letter, he said KIT's new audit committee members may have chosen to apply different revenue recognition policies, a move that isn't prior management's responsibility. He also said that given the board's "emphasis on the dire current liquidity situation of the company, it appears to us that you, in conjunction with the company's senior creditors, may be conspiring to artificially decrease the company's stock price so as to acquire the company at a fire sale price that is unfair to shareholders."
Mr. Tuzman said current management "has shown disregard for the underlying business--including key clients, employees and vendors," and that the company has burned more cash from operations in the seven months since his departure then the company had burned from operations in the prior two fiscal years.
Among his list of complaints, Mr. Tuzman noted that current management had demonstrated a lack of sufficient understanding of the company's core technology, products and capabilities, and moved the company headquarters from its low-cost European center of Prague to a high-cost office in New York City--despite over 50% of the company's revenue being European in origin.
The company, which makes software that helps companies manage and distribute video over the Internet, had seen increased revenue of late, thanks in part to the growing popularity of online videos. But asset sales have contributed to the company's red ink in recent quarters. KIT has recently shuffled its management and board, due in part to shareholder requests. In September, the company unveiled plans to cut about 300 jobs, or 22% of its total workforce, as part of its ongoing turnaround efforts.
--Nathalie Tadena contributed to this article
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The former chief executive of KIT digital Inc. KITD +9.44% has accused the company of seeking to "scapegoat prior management" for its current problems and said he is prepared to lead a group to buy KIT for $193 million, an offer that comes two days after the software company said it would restate financial results due to accounting errors.
Kaleil Isaza Tuzman said he has reviewed a per-share all-cash offer of $3.75--an 81% premium over its Wednesday closing price--for KIT with "two large private equity groups who are interested in participating," and he believes he has the backing of some executives and others who would be key to execute a turnaround for KIT.
Shares tumbled 57% to 89 cents in recent premarket trading. Through Wednesday's close, the stock has fallen 77% in the past 12 months.
The company wasn't able to immediately provide comment.
Earlier this week, KIT said it would restate its financial results since due to accounting errors and was considering strategic options, including financing transactions and a possible sale of the company, as it expects to continue to incur significant cash expenditures.
The maker of on-demand software will restate its financial results for 2009 through 2011, as well as the first two quarters of 2012, due to errors related to the recognition of revenue of certain perpetual license agreements it said were entered by the prior management team in 2010 and 2011.
Mr. Tuzman stepped down as KIT's CEO at the end of March, saying he would work exclusively as the company's chairman. However, the following month he also resigned from that post for undisclosed reasons.
In his letter, he said KIT's new audit committee members may have chosen to apply different revenue recognition policies, a move that isn't prior management's responsibility. He also said that given the board's "emphasis on the dire current liquidity situation of the company, it appears to us that you, in conjunction with the company's senior creditors, may be conspiring to artificially decrease the company's stock price so as to acquire the company at a fire sale price that is unfair to shareholders."
Mr. Tuzman said current management "has shown disregard for the underlying business--including key clients, employees and vendors," and that the company has burned more cash from operations in the seven months since his departure then the company had burned from operations in the prior two fiscal years.
Among his list of complaints, Mr. Tuzman noted that current management had demonstrated a lack of sufficient understanding of the company's core technology, products and capabilities, and moved the company headquarters from its low-cost European center of Prague to a high-cost office in New York City--despite over 50% of the company's revenue being European in origin.
The company, which makes software that helps companies manage and distribute video over the Internet, had seen increased revenue of late, thanks in part to the growing popularity of online videos. But asset sales have contributed to the company's red ink in recent quarters. KIT has recently shuffled its management and board, due in part to shareholder requests. In September, the company unveiled plans to cut about 300 jobs, or 22% of its total workforce, as part of its ongoing turnaround efforts.
--Nathalie Tadena contributed to this article
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
