Online Resources Seeks Peace With Its Biggest Shareholder

After losing a nasty proxy fight last week with his company's largest shareholder, the chairman and chief executive of electronic bill-payment technology provider Online Resources Corp. seems ready to bury the hatchet. “I think it's going to work out,” Matthew P. Lawlor, who co-founded the Chantilly, Va.-based company 20 years ago, tells Digital Transactions News. “There's always a silver lining.” Three nominees backed by hedge fund Tennenbaum Capital Partners won seats on Online Resources' 10-member board of directors over a slate of three management-backed incumbents, one of whom had been a director since 1989. Counting current director Michael E. Leitner, Tennenbaum's managing partner, Santa Monica, Calif.-based Tennenbaum seemingly will control four board seats once its nominees are seated. The background of the fight is the drop in Online Resources' stock price?off 70% since the company went public in 1999 (Digital Transactions News, April 15). The run-up to Online Resources' May 6 annual meeting included dueling proxy cards, a “blue” one with the Tennenbaum-backed candidates and a management-backed “white” one. Management claimed Tennenbaum, which holds a 22% stake in Online Resources, wanted a quick sale of the company to recoup as much of its preferred-stock investment as possible, but that such a sale wouldn't benefit common shareholders. Management also questioned whether the Tennenbaum nominees had the experience to properly guide Online Resources. Tennenbaum poured $160 million into Online Resources, an investment that enabled Online Resources in 2006 to buy a rival bill-pay tech company, Princeton eCom Corp. Leitner didn't return a Digital Transactions News call for comment, but in a filing shortly before the annual meeting, Tennenbaum denied it intended to sell the company and that its goal was to “create value for all common shareholders.” On Thursday, a day after the annual meeting, Online Resources and Tennenbaum issued a joint press release indicating that they had made peace, at least in public. “We firmly believe Online Resources has the best online financial-information and payment service in the industry,” Leitner said in the release. “We are committed to growing the business and maintaining the company's high quality of service and track record of innovation.” Lawlor, meanwhile, said in the release that, “I congratulate and welcome” the newly elected nominees. In an interview, Lawlor acknowledged that “we've had our differences” [with Tennenbaum,] but what good does it do? I said 'Michael … let's focus on those things we have in common.' We all want a higher stock price.” Online Resources has taken on debt to position itself for growth, and that debt recently has been a drag on the stock, Lawlor says. But most of the stock price is less about Online Resources' performance and more about the overall market, according to Lawlor. He says the company has fared well over the years against its tech peers. “It's like your house?90% of your value is in your neighborhood,” he says. Now about midway into a five-year growth plan, Lawlor says Online Resources is differentiating itself from competitors and is poised to grow as banks and companies seek to replace paper bills with electronic payments. The proxy fight very well could have been the result of the tension between Lawlor's deliberate style and Tennenbaum's need for a quicker return on its investment, says James Van Dyke, president of Pleasanton, Calif.-based Javelin Strategy & Research. Back in 1989, while working for check printer and bank-services provider John H. Harland Co., Van Dyke forged a deal that made Harland, which was looking for an electronic bill-pay provider, one of Online Resources' earliest customers. “What I'll tell you is Online Resources always has been and is a very conservative organization,” says Van Dyke. “Matt is a remarkably conservative guy, grows the company slowly, places very safe bets.” Tennenbaum, meanwhile, comes from a different background. “You get a Wall Street guy that wants a quick and aggressive return?a quick return is a way of risk mitigation,” says Van Dyke. “I'm sure that's the source of the conflict.” Lawlor says he plans to stick around at least until the five-year plan is completed in a couple of years. “Once that's done, the board will decide if I'm the right guy or not,” he says. Online Resources' release didn't reveal the vote count from the annual meeting, but said final results would be reported in a Securities and Exchange Commission filing.