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UPDATE 1-Hedge fund Indaba pushes Benefitfocus to put itself up for sale

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Svea Herbst-Bayliss
·2 min read
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(Updates with comment from the company, stock price)

By Svea Herbst-Bayliss

BOSTON, Feb 11 (Reuters) - Indaba Capital is pushing benefitmanagement software company Benefitfocus Inc to putitself up for sale after years of poor returns and high turnoverin the executive suite, according to a letter the hedge fundsent to the company's board on Thursday.

Benefitfocus stock price jumped than 10% to trade at $17.31after Indaba, which owns a stake of 9.6% dialed up the pressureafter weeks of private negotiations that ended last month.

The company did name a new director and said an independentchairman will be appointed at the annual meeting. The hedge fundobjected to these specific moves, although it had asked for new,diverse, independent board members and for the company to unwindfinancial transactions with an entity controlled by a currentdirector.

"They suggest only a wink to cleaning up the mess, with noreal commitment to value-enhancing change," said the letter,seen by Reuters.

Now the hedge fund, which oversees $1.5 billion in assets,is urging a "good faith sales process," adding "the currentleadership has lost the privilege of running Benefitfocus."

Benefitfocus said it is committed to generating substantialvalue for shareholders, is open to constructive suggestions, androutinely reviews strategic priorities and opportunities.

"We have also taken steps to enhance our corporategovernance, improve our financial flexibility, bolster ourbalance sheet and strengthen our leadership team," the companysaid in a statement.

Indaba blames the board for Benefitfocus' sluggish stockreturns, heavy executive turnover and poor capital allocation.

Since 2015, Benefitfocus has had three chief executives andsix chief financial officers.

Benefitfocus shares have jumped 18.6% in the last five days.But in the 52 weeks to Feb. 5, they dropped 23.7% while peersgained an average 55.7% and the Russell 2000 index gained 32.8%.

Over five years, Benefitfocus' stock has dropped 43%compared with a 527.5% gain for peers and a 126.6% gain in theRussell 2000 index.

While the hedge fund and company were holding talks, Indabasuggested three candidates for the board, including two AfricanAmericans.

The company in January said Doug Dennerline, who has been onthe board since 2014, will become independent chairman whileMason Holland, the company's co-founder, will become chairmanemeritus.

Indaba was founded in 2010 by former Farallon CapitalManagement partner Derek Schrier and has traditionally kept alower profile making both stock and credit bets.

In addition to being one of Benefitfocus' largest stockowners, it holds approximately 22.9% of Benefitfocus'outstanding issue of the 1.25% convertible senior notes.

Lawyers and industry analysts have said mergers andacquisitions are likely to heat up as vaccine rollouts ease thepandemic and boost the economy and investors push companies toperform better.(Reporting by Svea Herbst-Bayliss'Editing by Bernadette Baum and David Gregorio)