Tuesday, March 18, 2008

CNET to appeal

In a ruling last week arising out of the Jana-led proxy fight for control of CNET, the Chancery Court in Delaware interpreted CNET's one-year notice rule as a matter of "proxy access," not one of "advance notice" for a nomination as such.

Proxy access -- the situation in which a dissident shareholder gets to piggyback off of the proxy materials that companies must provide their shareholders, and make its own case within those materials -- is determined by the federal regulatory system.

The court said that CNET's one-year requirement means that a shareholder,m even one who meets the relevant federal test, doesn't have a right to access to management-generated materials prior to that company's shareholder meetings if it has only acquired its stake in the company recently. Nonetheless, if it isn't interested in piggybacking, if it is willing and able to bear the cost of its own materials itself, as Jana is, then it can proceed with its nomination and its resolutions.

This ruling came as a surprise to a lot of observers, including yours truly.

Yesterday (when, by happenstance, most of the financial world was too absorbed by the Bear Stearns saga to notice), CNET said it is appealing to the Delaware Supreme Court.

"CNET Networks said that it continues to believe that its by-law provisions, which were approved by stockholders and have been in place since the Company's IPO, are fully applicable to hedge fund JANA Partners, LLC's proposals, and are valid and in the best interests of stockholders. The Company also said that the lower court decision incorrectly calls into question the by-laws of a large number of companies with the same or similar by-law provisions."

The chancery court decision may "call into question" all those other company's by-laws to the extent that if they use the same words, they'll be subject to the same interpretation. But it doesn't void them, and a company can re-write the wording of its by-laws to be more clear that it isn't merely limiting the piggy-backing.

Another big question here: why is it sometimes Jana and sometimes JANA? The company itself seems to use JANA consistently. But so far as I know, the letters don't stand for anything. Many news organizations, including the New York Times, have accordingly treated "Jana" in this context as a word.

The take-away though is this: advance notice requirements haven't been declared void in Delaware, even those that extend for the unusual period of a year. Still, such notices may be treated to narrow construction due to a feeling of the chancery court that they are against public interest, especially if the newly-0staked dissident is willing to put up its own resources for the proxy contest.

No comments: