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Rosetta Stone shares jump on takeover talks

Rosetta Stone shares jump on takeover talks

Rosetta Stone, the language learning software developer, said Friday it has received “an expression of interest” to be acquired by private equity firm RDG Capital Fund Management, a possible exit strategy amid falling sales and rapidly changing education technology. Shares of Rosetta rose 19% to end Friday at $7.62. “The board stated that it will carefully evaluate the expression of interest,” it said.

Rosetta Stone has received an "expression of interest" to bought.   (PRNewsFoto/Rosetta Stone Inc.)

The Arlington, Va.-based company has had a tough time reviving sales as consumers now have a plethora of other options in learning languages beyond paying for its yellow-boxed CDs. Earlier this year, Rosetta announced it’s looking to implement a turnaround plan in hopes of driving the stock higher, focusing on higher-margin customers, such as schools and corporate customers, and simplifying the overall business. “I am not surprised that the (private equity) folks are starting to show up now that there is a strategy being implemented to extract the company from its legacy consumer business,” said Matt Blazei, an analyst at Lake Street Capital Market

The company’s business-to-business products focused on the education and enterprise markets are estimated “to reach at least $122 million in bookings” this year, Blazei said. “The reason for the ‘pivot’ in the business model announced in March was primarily to focus the company’s resources on accelerating the growth in this channel.” In the first quarter, Rosetta’s sales fell 4% to $58.4 million. It also posted a net loss of $19.9 million, stemming from weak sales and a restructuring charge related to layoffs. The restructuring plan calls for a reduction of annualized costs by about $50 million.

In April, CEO Stephen Swad stepped down as sales continued to decline. He was replaced by John Hass on an interim basis.“The combination of an entirely new business model, a shakeup of senior management, a new consumer pricing strategy and a significant headcount reduction resulted in a challenging quarter,” Blazei wrote after the first quarter earnings report.


December 2017
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