Fonts vs emojis: a battle giving investors a sad face

As the owner of Times New Roman, Helvetica and Arial, Monotype Imaging has assembled one of the most lucrative collections of fonts in the world - but when the company added emojis to its portfolio, one investor responded with a frowny face.

Massachusetts-based Monotype has attracted the attention of the hedge fund Starboard Value, in what could be one of the quirkier tussles set to develop between an activist and a small-cap company in 2018.

Starboard, led by investor Jeff Smith, has taken on the likes of Yahoo and Darden Restaurants in recent years, and manages more than $6 billion (€5 billion).

It disclosed a 6.8 per cent stake in the company in October, and people close to the fund say it believes Monotype has obscured the value of its strong fonts business with several questionable acquisitions.

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Based in a suburb of Boston, Monotype bought up dozens of font libraries, either owning them outright or owning the rights. Monotype says its fonts are used by more than 800 of the 2,000 largest global companies in their branding.

But faced with declining revenues in some parts of its business, such as selling fonts to the manufacturers of printers, it branched out by buying Swyft, an emoji designer, and Olapic, a content creator for brands on social media.

Monotype says it acquired the two companies so it could leverage the access it has to the largest corporations in the world through its font business to offer additional services.

Conversations

But one analyst, Jackson Ader at JPMorgan, wrote in a client note after the Starboard stake was disclosed that “some conversations around acquisition strategy, expense discipline and capital allocation could be good for the stock”.

Starboard said in a regulatory filing that it may try to engage with management and the board about its ownership structure, board composition, and possible mergers or spin-offs, and give suggestions for improving the business.

Monotype, with a market cap of about $1 billion, is one of the smaller activist targets of the current season, which culminates in next spring's round of annual shareholder meetings. Funds have been targeting a wider range of companies and poured more than twice as much money into activist campaigns in 2017 than last year, according to data compiled by the investment bank Lazard.

Monotype said it is committed to building on its momentum in its font business, integrating Olapic, and stabilising its printer business.

While declining to comment directly on the Starboard stake, it said: “Monotype’s board and management team welcome all views that will help advance and accomplish these objectives.”

– Copyright The Financial Times Limited 2018