Edge One Capital Sends Letter to BuzzFeed Demanding Overhaul of Corporate Board and Governance

RALEIGH, N.C., Oct. 8, 2024 /PRNewswire/ -- Edge One Capital has sent a letter to BuzzFeed demanding a corporate board and governance overhaul, holding management and the board of directors accountable to their fiduciary duty. BuzzFeed, which also owns the Huffington Post, Tasty, and First We Feast, is fully controlled by CEO and Chairman Jonah Peretti.

The letter points out inconsistencies in the board of directors' backgrounds, actions, and incentives and shows the dysfunction in BuzzFeed's corporate governance. According to Edge One Capital, the current governance structure does not protect shareholder rights or their interests. Without a proper corporate governance structure, BuzzFeed cannot protect and sustainably address the interests of all shareholders and ultimately realize its full potential in shareholder value.

Management and board changes can play an essential role in creating value for companies, as seen with Bill Ackman's Pershing Square, which invested in Chipotle and recruited Brian Niccol to run the business, and recently a similar playbook with Elliott Management at Starbucks.

"If BuzzFeed had effective and functional corporate governance with a one-share, one-vote structure, the management and board would act differently and compositionally look dramatically different today," said Varun Gupta, Founder and Managing Partner of Edge One Capital.

He added, "BuzzFeed has the potential for immense shareholder value appreciation. It can become a dominant player in the creator economy if it leverages its brands, media, and technology in a way that content creators, such as Mr. Beast and Kim Kardashian, have done with products such as Feastables and Skims."

According to Gupta, BuzzFeed has the opportunity to be a leader in the changing media landscape with AI. However, this can only be done through visionary leadership and oversight by management and the board. "Edge One Capital plans on being a long-term investor in BuzzFeed and has been increasing its position in BuzzFeed," said Gupta.

BuzzFeed's management and board have repeatedly shown an unresponsive and dismissive attitude towards shareholders. Fortunately, shareholders still have options to drive change, including legal recourse.

Full Text Of The Letter:

To the Management and Board of Directors of BuzzFeed:

As one of BuzzFeed's largest institutional investors, Edge One Capital has invested significant capital in BuzzFeed because of its immense potential. We also recognize the considerable challenges the Company faces, including a persistent revenue loss, a record of failed acquisitions and growth initiatives, and the looming overhang of a potential default on BuzzFeed's debt.

To overcome these challenges and achieve its potential, BuzzFeed must enact strict financial discipline, adopt a renewed focus on enhancing shareholder value, and reenergize its content strategy. None of this will be possible without strong decisive management and board action. However, BuzzFeed's current management team and board of directors have proven ineffective in making these changes.

Edge One Capital is not alone in raising concerns about BuzzFeed; Vivek Ramaswamy and William Pulte have independently recognized the urgent need for change at BuzzFeed as well. We have all made separate attempts to engage with the management team and offered constructive ideas to unlock shareholder value. Rather than welcoming input, Founder and CEO Jonah Peretti has dismissed shareholder concerns and hides behind an outdated share structure and unfriendly shareholder governance provisions that enable him to operate with little to no accountability or oversight.

Current BuzzFeed directors lack the independence, relevant turnaround experience, and media company expertise necessary to provide proper management oversight. The Company needs new directors with appropriate expertise and genuine independence from management. Shareholders cannot afford further destruction of value. The time for change is now.

Failed Acquisition of Complex Networks Signals Disconnect from Reality

BuzzFeed acquired Complex Networks ("Complex") for $300 million in 2021 as part of its go-public transaction. At the time of the acquisition, BuzzFeed projected a proforma revenue of $1 billion by 2024¹. Three years later, BuzzFeed reported $240 million for the trailing twelve months ending in June 2024, which was a decrease of 75% of what was expected.  

Regarding Complex, CEO Jonah Peretti's Q3 2023 Investor Letter dated November 2, 2023, said: 

"it is delivering premium original content that covers the latest trends in sneakers, music, and convergence culture .. Complex drove robust viewership growth on YouTube once again in Q3, up ~40% year-over-year"

Despite these claims, within four months, BuzzFeed announced the sale of Complex to NTWRK for $108.6 million cash – 65% less than what BuzzFeed paid three years ago. While the need to pay off debt (much of which was initially taken on to buy Complex) may have expedited the decision to sell Complex, we wonder why BuzzFeed continued to invest in it as late as Q3 2023. This is especially puzzling since, in the very next quarter, Jonah explained how Complex did not fit the company's strategy in the Q4 2023 Investor Letter.

¹ https://www.sec.gov/Archives/edgar/data/1828972/000110465921085218/tm2120621d1_ex99-2.htm

"Complex was an asset that derived revenues predominantly from lower-margin businesses: custom branded video content and events. 

Following the sale, the majority of our revenue is now generated through programmatic advertising and affiliate commerce — both capital efficient, high margin, scalable businesses that leverage our existing tech infrastructure….  .

As a result, our company is now organized around the business lines that have historically been the most stable, profitable, and nimble."

BuzzFeed's shareholders deserve a board and leadership team capable of making decisions grounded in strategic and accurate foresight. 

Company Lacks Credible Strategy to Reverse Declining Revenue

The Company's current restructuring efforts have clearly failed to reverse revenue loss and materially grow revenue, which is critical for a successful turnaround strategy. Revenue for the Advertising and Content segments declined by double-digits during the 1^st half of FY24, with overall revenue contracting 22%, following 30% declines for both segments in FY23. These repeated downturns demonstrate that BuzzFeed's failure has deep roots. 

 Revenue Performance 

Source: SEC filings

Looking ahead, BuzzFeed projects revenue of $58 million—$63 million for 3Q FY24, which at the lower end would represent a 3% year-over-year decline. Even if BuzzFeed achieves a scenario of 10% or 15% year-over-year growth, this marginal growth would not suffice to restore meaningful shareholder value or inspire confidence in a sustainable turnaround. To meaningfully reverse the continued revenue decline, management needs a new and effective strategy with oversight and accountability. The failure to demand change in management is a failure that we must lay at the feet of the board.

Director Greg Coleman's Advisory Agreement 

Interestingly, BuzzFeed retained the services of one of its own board members, Greg Coleman, as a paid advisor to support sales and marketing efforts from December 2022 through December 31, 2023². Considering the double-digit decline in revenue BuzzFeed experienced during FY23, one must question the value of Greg's contribution as an advisor. Given that Greg's previous experience is at tech companies such as Yahoo and AOL – both of which dramatically failed to maintain leadership positions in their respective markets – one must question what value anyone thought he brings to BuzzFeed today.

Greg Coleman's employment history, board membership, and advisory position also raise corporate governance red flags. He served as the President of Legacy at BuzzFeed from 2014 until 2017. Given this prior role at the Company, his advisory agreement, and his long work history with Jonah and BuzzFeed, we question how he could possibly be considered an 'independent' director or a suitable member (let alone Chair) of the Compensation Committee.  

BuzzFeed's Board Lacks the Experience and Expertise Needed for a Successful Turnaround Strategy

Reviewing the credentials of the incumbent directors reveals that Greg Coleman is just one of the many examples of the board's lack of relevant expertise to guide management in executing a turnaround. 

• Director Greg Coleman currently serves as the Entrepreneur in Residence at Lerer Hippeau Ventures – a fund exclusively focused on early-stage entrepreneurs³. According to its website, "We're specialists focused on zero-to-one, leading Seed and Pre-Seed rounds." BuzzFeed, however, is not an early-stage company in need of seed or pre-seed capital. The scale at which BuzzFeed operates is multiple times larger than the businesses that Greg advises. 

Greg also appears to be a 'professional' board member, serving on the boards of Verve, Cadent, Static Media, Guideline, and Botify, in addition to BuzzFeed⁴. Given his numerous other board positions, we question if he has the bandwidth to support BuzzFeed's turnaround efforts. 

• Director Janet Rolle served as the CEO of the American Ballet Theatre and on the board of Hallmark Cards. Considering that neither company specializes in services remotely comparable to BuzzFeed, we believe she lacks the experience needed to be an effective director. 

Janet also served on the board of Carver Bancorp from August 2010 to December 2021, during which time Carver's share price fell from $91.00 per share to $9.70 per share—a massive 89% decline in shareholder value⁵. Considering her background, it is not surprising that Janet failed to provide oversight of the Complex acquisition and has done little to protect shareholder interest. 

² https://www.sec.gov/ix?doc=/Archives/edgar/data/1828972/000182897224000057/bzfd-20231231.htm (Greg Coleman Adviser Agreement)
³ https://www.lererhippeau.com/
⁴ https://investors.verve.com/corporate-governance/board-of-directors/greg-coleman/
⁵ Source: https://www.globenewswire.com/news-release/2010/07/19/425322/7036/en/Carver-Bancorp-Inc-Appoints-Three-New-Board-Members-Susan-Tohbe-Colbert-Narcisse-and-Janet-Rolle.html

• Director Angela (Anjula) Acharia has been a member of the board since BuzzFeed became a public company. She is the founder and Chief Executive Officer of A-Series Investments and Management, which serves as a talent strategist, strategic investor, and advisor to consumer technology and consumer packaged goods companies, also known as the manager to celebrity Priyanka Chopra. According to her LinkedIn profile⁶, A-Series invests in 'early-stage companies', which have limited relevance to BuzzFeed today. 

Angela co-founded DesiHits in 2005, a multimedia platform aimed at introducing Western pop artists to the Indian demographic that ceased operations in 2009. Her experience in Asian markets is not aligned with BuzzFeed's primary demographics and market space. 

Angela was supposed to bring licensing deals to grow BuzzFeed's revenue and engagement. Angela's expertise in talent management and entertainment was supposed to strengthen BuzzFeed. Then why did BuzzFeed's departed content creators and talent create the popular videos titled "Why I Left BuzzFeed," which gained popularity and were a huge success?

Angela has no public board or corporate governance experience. Her forte as an attempted socialite and angel investor does not align with BuzzFeed's turnaround needs today.

• Director Adam Rothstein is the Co-Founder and General Partner of Disruptive Technology Partners, an Israeli technology-focused early-stage investment fund. 

His career focus has been on sponsoring special purpose acquisition companies (SPAC), and his track record has been poor: SPAC shareholders lost significant capital in every such entity Adam sponsored, with one even filing for bankruptcy.

Adam Rothstein SPAC Returns 

https://www.marketscreener.com/quote/stock/CARVER-BANCORP-INC-9391905/news/Carver-Bancorp-Inc-and-Carver-Federal-Savings-Bank-Announces-Resignation-of-Janet-L-Rolle-as-Mem-37395833/

⁶ https://www.linkedin.com/in/anjula-acharia-206735/

Source: Factset

Again and again, we see the Company's current directors have similar and overlapping experiences in advising early-stage companies and working in demographics and markets far different from those of BuzzFeed. Some of their experience may have been relevant for BuzzFeed as a startup, but it is not what BuzzFeed so desperately needs today. In addition, the Company's recent investor communications emphasize the importance of AI-powered content, but AI expertise is not evident in the CVs of the current directors. If BuzzFeed aims to have a strategy focused on AI, then how can the Board provide oversight and guidance without having expertise in AI?

For each of these directors, we pose the following questions to the board:

• What is the relevance of the director's experience to BuzzFeed's current needs, especially the turnaround plan?
• What impact does the director make as a board member that they couldn't make as an advisor?
• Were any of the directors recruited because of DEI or other considerations than their business acumen and ability to contribute to the Board's guidance and oversight of management?
• What contribution has each director made to improve BuzzFeed's traffic and stem the loss of content creators?
• Does the director have a strong corporate governance background and public board experience required for a public company run by a founder-CEO?

Instead of Safeguarding Shareholder Interest, BuzzFeed's Board has Shielded Jonah Peretti

Given its lack of relevant experience, it's unsurprising that the incumbent board has for years failed to hold its CEO responsible for destroying shareholder value. What we find truly extraordinary, however, is the extent to which the board has actively created an environment where Jonah Peretti faces no repercussions for poor decisions and is instead insulated from shareholder influence. BuzzFeed's governance structure is alarmingly riddled with provisions that are widely recognized as anti-shareholder, including: 

• A classified board 
• No majority vote standard for the election of directors
• No director resignation policy
• Supermajority vote requirement to remove directors and to amend the bylaw/charter
• Shareholders cannot act by written consent or call a special meeting

Furthermore, BuzzFeed operates under a dual-class (Class A and Class B) share structure that grants disproportionate voting power to Jonah, who owns 96% of all Class B shares, equivalent to 64% of BuzzFeed's combined voting power, an effective veto over any attempt to rein him in. This governance structure, which is inconsistent with Council of Institutional Investors (CII) guidelines, disenfranchises the majority of shareholders and undermines accountability. CII advocates for a "one share, one vote" system, ensuring that all shareholders have an equal say in the company's future.

Research indicates that while dual-class structures may offer benefits at a company's inception, such as protecting visionary founders, they tend to diminish firm value over time⁷. Research highlights that dual-class structures oven lead to conflicts of interest, reduced transparency, and weaker shareholder returns in the long run. Voting rights for shareholders give shareholders a say on corporate governance matters, and strong corporate governance is the only way to ensure long-term oversight of the company and achieve all shareholder representation. By transitioning to a "one share, one vote" structure, BuzzFeed would better align itself with long-term value creation and shareholder fairness. 

BuzzFeed's Board Rewards the CEO for Destroying Shareholder Value

Even more disconcerting, the board has continued to enrich Jonah, rewarding him for his poor performance as CEO even as shareholders suffer. In May 2024, BuzzFeed announced a new compensation package for Jonah, granting his cash-based compensation in the form of at-the-money opinions, with a strike price at the then-current value. Rather than aligning compensation with performance, the board rewarded Jonah when company shares were trading at distressed valuations due to concerns about upcoming debt payments. The new compensation arrangement also allows him to accumulate more voting power, once the options are exercised, thereby deepening the imbalance of power between Jonah and the broader shareholder base, further marginalizing shareholder voices and concerns.

Given BuzzFeed's history of misallocating capital, can management and the board efficiently allocate stock-based compensation and also efficiently execute the $150 million ATM offering that they recently authorized, which has the potential to significantly dilute shareholders?

For BuzzFeed to have any chance of turning around its fortunes, the board must advocate for a governance structure that genuinely represents all shareholders, not just one individual. It must uphold its fiduciary responsibility to protect the interests of all shareholders, rather than perpetuate a system that serves only the CEO's interests at the expense of long-term shareholder value.

A Call to Action: For BuzzFeed's Independent Directors, Now is the Time to Step Up or Step Aside

The independent directors of any public company have a fiduciary duty to represent the interests of all shareholders. The recent resignation of all the independent directors at 23andMe⁸ serves as a stark demonstration of what can be done by directors who understand their responsibilities. Those directors resigned in protest against their founder-CEO's inability to present a value-enhancing plan for the company. Similarly, BuzzFeed's independent directors must assert their influence and oversight on management to ensure that the company's strategy aligns with the best interests of all shareholders, not just a single insider with disproportionate voting power. 

If BuzzFeed's management cannot demonstrate a clear and effective plan for restoring shareholder value, then independent directors have a duty to hold them accountable. This action may require public dissent and, if necessary, resigning in protest. 

⁷https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3062895

⁸ https://apnews.com/article/23andme-board-directors-resign-settlement-b3fda30fc8a95538f9391c5439c1cd52

In addition, the board's membership desperately needs an overhaul to include directors with relevant industry operating and public company board experience. Failing to uphold these fiduciary duties not only undermines the board's credibility but could also expose BuzzFeed to long-term legal and reputational risks. Change is no longer just an option—it's a necessity.

We look forward to BuzzFeed embracing these necessary changes and remain optimistic about the Company's future potential.

Sincerely,

Varun Gupta

Edge One Capital

To View A PDF Of The Letter Or To Download It, Click Here.

About Edge One Capital:
Edge One Capital is an investment firm based in Raleigh, North Carolina, with an emphasis on deep long-term value for all of its investments. For more information, please contact [email protected] or visit www.edgeonecapital.com

Media contact:
[email protected]

SOURCE Edge One Capital

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