Tags: Jim Cramer | TheStreet | Sale | Cannell Capital

Jim Cramer's TheStreet Urged to Explore Sale by Cannell Capital

Thursday, 04 December 2014 07:49 AM

Jim Cramer has made a career out of bombastically doling out advice to investors. Now, a hedge-fund manager is turning the tables on him.

Cannell Capital LLC, the second-largest shareholder of TheStreet Inc., the financial news company that Cramer co-founded, is urging the company to pursue a sale to resolve a conflict of interest that stems from the fact that Cramer also works for CNBC, the business news network.

Alternatively, Cramer should quit his job at CNBC, J. Carlo Cannell wrote in a letter addressed to the host of “Mad Money,” who is also a director of TheStreet. The missive was disclosed in a SEC filing.

“You are simultaneously an employee of CNBC and a director, major shareholder and employee of TST,” Cannell wrote, referring to TheStreet by its stock ticker. “To which entity do you ascribe your greater allegiance?”

Cannell owns nearly 9 percent of TheStreet, which runs a news and commentary website and sells subscriptions to newsletters. Cramer, who co-founded TheStreet in 1996 and still writes and appears in videos for the website, is the company’s largest shareholder with a 10 percent stake.

‘Mad Money’

On his TV show “Mad Money” the 59-year-old highlights his investment ideas, and has a following that is large enough that stocks he discusses can rise or fall on his suggestions.

Cramer didn’t reply to a voicemail left for him at CNBC or an e-mail.

“We’re proud to have TheStreet’s founder, Jim Cramer, under contract,” Elisabeth Demarse, chief executive officer of TheStreet, said in an e-mailed statement. “Our board regularly reviews strategic alternatives and welcomes suggestions from our valued shareholders.”

TheStreet competes with Bloomberg News to provide financial news and commentary.

The letter is as colorful and provocative as Cramer’s TV personality. Leaving CNBC and focusing his efforts on building TheStreet’s premium newsletter service, would “require you to muster more courage and honor,” Cannell wrote. “Resign from CNBC and align your considerable energy and talents to helping your fellow shareholders crawl back from Hades.”

The hedge-fund manager also suggests Cramer take a pay cut as part of a full-time return to TheStreet, complaining that his compensation is almost 5 percent of the company’s market value.

Cramer’s Legacy

“How will you reflect upon on your legacy?” Cannell wrote. “You have done well, but how has the common shareholder done?”

Company filings show that Cramer is guaranteed at least $2.5 million a year in royalties, another $300,000 in licensing, as well as stock awards.

Much of Cannell’s criticism is focused on TheStreet’s share performance. The company, which had about $48 million in cash on its balance sheet at the end of September, has a market value of about $83 million after the shares rose 7.1 percent Wednesday in New York trading.

Dot-Com Bubble

Even after the gains, the $2.41 a share stock price pales in comparison to its previous highs reached during the dot-com bubble and before the financial crisis.

The company’s revenue peaked in 2008 at about $71 million. Sales in the year through September were closer to $59 million.

Cannell acknowledged that DeMarse, who took her position in March 2012, has been improving results at the company by cutting expenses and with acquisitions including a 2012 purchase of The Deal LLC, which covers mergers and acquisitions news.

In 2013, the company’s net loss was $3.8 million, compared with an almost $13 million loss the prior year, and revenue increased by more than 7 percent.

This isn’t the first time a shareholder has called for a sale. Last July, Spear Point LLC urged the company to hire a bank to consider strategic alternatives, in a letter filed to the SEC. Spear Point, which no longer holds its stake according to Bloomberg data, said it was concerned that the company was undervalued.

The investment firm’s co-CEO Ron Bienvenu said at the time that Spear Point would be willing to participate as an acquirer of TheStreet, and could offer premium to shares that were then trading at below $2 each.

Cannell Capital, based in San Francisco, was founded in 1992 by J. Carlo Cannell with $600,000. It’s grown to manage $890 million in assets, according to its website. The firm buys securities that mostly aren’t followed by Wall Street analysts.

The colorful language has always been part of the fund’s style. In a 2004 statement, it described its short-selling strategy as one targeting companies“marred by unscrupulous management or characterized by hokey products.”

In a 2005 letter sent to directors of BKF Capital Group Inc., which owns an investment adviser, Cannell invoked ancient Roman history.

“In 63 B.C., did Marcus Tullius Cicero expose corruption and vice in the Roman Senate in his First Oration Against Lucius Catilina,” Cannell wrote. “His words are relevant today as we study the record of BKF Capital Group.”

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Jim Cramer has made a career out of bombastically doling out advice to investors. Now, a hedge-fund manager is turning the tables on him.
Jim Cramer, TheStreet, Sale, Cannell Capital
Thursday, 04 December 2014 07:49 AM
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