| James Cramer |
Hedge fund manager J. Carlo Cannell of Cannell Capital is challenging James Cramer over his compensation from TheStreet Inc., which runs TheStreet.com, the online news service Cramer founded.
Cannell is calling on Cramer — who serves as a director at the company — and TheStreet’s other directors to sell the company, or at the very least for Cramer to resign from CNBC. Cannell, whose firm is based in Jackson, Wyoming, said in a regulatory filing on Wednesday that he owns more than three million shares of TheStreet, or 8.95 percent of the total outstanding on behalf of his hedge funds, Tristan Partners and Tristan Offshore Fund.
Cannell founded Cannell Capital in 1992. He manages a $266 million equity portfolio.
In an acerbic letter to Cramer, in which Cannell channels the bombastic Third Point founder Daniel Loeb, Cannell points out that TheStreet’s market capitalization has shriveled from its peak of $1.7 billion in 1999 to $75 million today, a “dissipation of about $1.6 billion of shareholder value.” Yet, from May 1999 to December 2013, Cannell asserts that Cramer has “extracted more than $14 million in cash payouts” from the company, excluding millions paid out as stock options.
“In addition, you have enjoyed considerable non-pecuniary compensation,” Cannell adds, pointing to what he describes as “perfumed sedan driver(s) and assorted assistants who spray ionized lavender water on your barren cranium.”
In the letter, Cannell goes on to point out that Cramer’s four-year employment deal, signed in November 2013, guarantees total compensation of at least $3.5 million per year, which he says works out to nearly 5 percent of the company’s market capitalization and more than the cumulative dividends expected to be paid out this year to shareholders.
“Were there to have been wealth creation we would characterize your robust compensation as accretive. But [as] there has only been wealth transfer, we characterize this as dilutive,” Cannell states in the letter.
And although Cannell praises Cramer for his “tremendous” brand, tenacity and intellect, he accuses the commentator and one-time hedge fund manager of being in “a grand structural conflict” due to his simultaneous role as an employee of CNBC and a director, major shareholder and employee of TheStreet.com. “To which entity do you ascribe your greater allegiance?” Cannell challenges him.
Cannell goes on to sarcastically ask Cramer in the letter: “When you lie upon your deathbed, how will you reflect upon on your legacy?” He points out that TheStreet’s stock has fallen from a high of $70 to a current $2.20. “You have done well, but how has the common shareholder done?” Cannell adds.
Cannell urges Cramer and his fellow directors to sell the company, claiming it is worth “substantially more today than two years ago,” thanks in large part to Elisabeth DeMarse, who was named CEO in March 2012. He also praises the company’s acquisition of The Deal in late 2012 for $10.8 million, stressing that it was “financially accretive and diversified revenue.”
Cannell also tells Cramer that another option would be to resign from CNBC, where the ratings of his once-vaunted show Mad Money recently “fell to an all-time low in the 25-54 age group.” On the other hand, his Action Alerts PLUS product with TheStreet “is now growing.”
“I imagine that this communication may be received with some frustration and perhaps a little embarrassment,” Cannell goes on to state in the letter. “Please rest assured that my intent is merely and solely to help all shareholders — not just one shareholder.”
