DEFC14A: ETFS Capital Launches Proxy Fight Against WisdomTree, Urges Stockholders to Vote Against Re-election of Key Directors

ETFS Capital, a significant WisdomTree stockholder, is urging fellow stockholders to vote against the re-election of three key directors due to concerns over the company's strategic direction and value destruction.

Summary

• ETFS Capital Limited, owning 10% of WisdomTree's common stock, is soliciting proxies to vote against the re-election of Jonathan Steinberg, Win Neuger, and Anthony Bossone at the upcoming annual meeting.
• ETFS believes WisdomTree's management has pursued an ill-advised strategy of transforming the company into a DeFi business, leading to poor performance in the core ETF business and unsuccessful DeFi initiatives like WisdomTree Prime and Bitcoin ETFs.
• ETFS argues that WisdomTree trades at a significant discount to its intrinsic value as a well-run pure-play ETF business.
• They claim the core ETF business has been poorly managed, resulting in a lower operating margin (28.5%) compared to the industry standard (40-45%), and a loss of market share in the US ETF market.
• ETFS estimates that WisdomTree could reduce expenses by $58 million per annum, translating into an additional $613 million of stockholder value.
• ETFS also criticizes the company's DeFi initiatives, stating that WT Prime has failed to gain traction and the Bitcoin ETF has a minimal market share.
• ETFS proposes that the Board form a special committee to consider strategic alternatives, including a sale of the business and a repositioning of senior leadership.
• ETFS is urging stockholders to vote against the re-election of the three directors to send a strong message to the Board that change is needed.
• ETFS is not seeking to take over the company or nominate its own directors, but rather to compel the Board to restore value for all stockholders.

Sentiment

Score: 2

Explanation: The document expresses a highly negative sentiment towards WisdomTree's current management and strategic direction, highlighting significant concerns about value destruction and poor performance.

Negatives

• WisdomTree's DeFi strategy has led to poor management of the core ETF business.
• WisdomTree's operating margin is approximately 28.5%, while ETFS believes a well-run ETF business should have an operating margin of 40% to 45%.
• WisdomTree has lost significant ETF market share in the US, declining from 37% to 28% among its main competitors.
• WisdomTree's Bitcoin ETF has only garnered 0.2% market share.
• WT Prime has not been able to gain any traction, with run-rate revenues a mere $0.03 million per annum.

Risks

• The Board may not accept the resignations of the directors even if they fail to receive a majority vote.
• The Board may re-appoint the directors even if they are not re-elected.
• The Company's long-term growth strategy and value-creation initiatives could be undermined if the Board implements ETFS' proposals.

Future Outlook

ETFS believes that a strategic review is needed to unlock the value of WisdomTree's core ETF business and that change is needed to restore and unlock the true value of the Company.

Management Comments

• Mr. Tuckwell expressed his concern that the Company does not appear to be interested in having a two-way dialogue with ETFS.
• Mr. Tuckwell stated that ETFS had given the Board quite a lot of detailed information and suggestions regarding the Company and how to improve the Company in two presentations last year but had received no feedback to date.
• Mr. Tuckwell expressed his view that ETFS was politely listened to but completely ignored by the Board.
• Mr. Tuckwell explained his concerns that since mid-2018 the Company's assets under management (AUM) had almost doubled but the share price had remained stagnant because of poor management.
• The Board stated that, after reviewing ETFS proposals, it concluded not to implement any of them because the Board believed taking any of these actions would undermine the Company's long-term growth strategy and value-creation initiatives for the reasons set forth therein.

Industry Context

The document highlights the competitive landscape in the ETF market, particularly in the US and Europe, and compares WisdomTree's performance against its peers.

Comparison to Industry Standards

• ETFS asserts that a well-run ETF business should have an operating margin of 40% to 45%, based on the operating margin for Blackrock, Inc.'s ETF business.
• WisdomTree has lost significant ETF market share in the US compared to its main competitors (being ProShares, Van Eck and Global X).
• In Europe, where crypto ETFs have been listed for a number of years and WisdomTree was an early entrant, the Company is struggling in 4th place in issuer rankings.
• The app is a poor offering compared to what firms such as Schwab offer in our view and there is no logical reason for investors to sign up to it other than for those curious to see how bad it is.

Stakeholder Impact

• The outcome of the proxy solicitation could significantly impact shareholders, employees, and other stakeholders of WisdomTree.

Next Steps

• Stockholders are urged to vote AGAINST the re-election of Jonathan Steinberg, Win Neuger, and Anthony Bossone at the 2024 Annual Meeting.
• The Board will act on the recommendation of the Nominating and Governance Committee and will publicly disclose its decision within 90 days from the date of the certification of the election results.

Key Dates

Keywords

WisdomTree, ETFS Capital, proxy fight, ETF, DeFi, Jonathan Steinberg, Win Neuger, Anthony Bossone, strategic review, stockholder value, corporate governance