What Does Icahn Want from the Best Speech Recognition Software Maker?

Nuance Communications Inc. (NASDAQ: NUAN) is a great company, and its Dragon Naturally Speaking has a handy lead in the world of speech-to-text software. It is fair to say that its stock has been a consecutive disappointment when you consider the mega-bull market we are in. We are more than a bit curious about an activist stake taken by billionaire Carl Icahn.

Entities and affiliates of Mr. Icahn himself and his Icahn Enterprises Holdings L.P. (NASDAQ: IEP) now hold a total of more than 29.3 million shares and that gives Mr. Icahn a stake of 9.27% in Nuance. What is interesting here is that this appears to be held for investment rather than for an all-out activist assault. What we would advise investors to consider is that Carl Icahn likes to get involved in his investments, and what may be a passive investment today could become a key activist target tomorrow.

After looking through recent filings, a mid-March filing shows that more than 46.6 million shares are owned by Warburg Pincus & Co. and that gives it a stake of 14.6%. Another 7.5% stake is held by Fidelity (FMR) and 9.3% is owned by T. Rowe Price.

The stake owned and controlled by Mr. Icahn and friends is worth almost $620 million today against a market cap of $6.7 billion. After a gain of almost 5% to $21.15, Nuance has a $18.00 to $26.79 range over the last 52-weeks. Shares peaked at almost $30 early in 2012 as it was a play on Apple Inc. (NASDAQ: AAPL) from powering voices technologies. Now that Apple has lost its shine, it is hard to imagine that it would not have fallen with it.

Nuance’s technology dates back to the old names of Lernout & Hauspie and ScanSoft. We consider the company to be the defacto leader of its field today. Of its $6.099 billion in total assets, we would note that over half of the assets $3.234 billion) are tied to Goodwill. Another $1.019 billion is tied to intangible assets and there is $961 million in cash.

Maybe Carl Icahn knows what to do with a speech recognition software company. Maybe this is something which he thinks can be somehow locked up inside of Dell Inc. (NASDAQ: DELL) if he gets his way with that computer giant. This one is just hard to see what Mr. Icahn is thinking. Maybe he just wants his stock to go up in price.

As we have said before, watch out for the growing activist investor bubble.