Last week I mentioned that the SEC rules on "routine" broker votes are once again in flux.
Individual investors usually hold their stock in brokerage accounts, registered in its "street name," i.e. the name of the broker. The proxy then, or its agent ADP Proxies, has often voted on routine matters. So: what counts as routine?
Until 2002, most increases the availability of stock options were considered routine, and thus subject to such broker-level rubber stamping. That stopped because of widespread complaints that stock options had become throughout the 1990s an instrument for the distribution of wealth away from shareholders, toward management and employees. Part of the fall-out of the post-dotcom and post-Enron re-appraissal of corporate governance was a change on this point: no more routine broker votes on stock options.
Uncontested directorial elections, though, have continued to be treated as routine. That is what is now up for change.
The first-line regulator on such matters is not the Securities and Exchange Commission but the New York Stock Exchange itself, though the NYSE must submit its rule changes to the SEC for approval. Accordingly, the NYSE has submitted to the SEC a rule change that would prohibit discretionary voting by brokers in uncontested director elections.
Experts at Wachtell Lipton have argued that "the proposed rule change could significantly increase the power of institutional shareholders generally and activist shareholders specifically in influencing director elections and corporate affairs."
The public comment period on this rule change expired Tuesday, March 28.
Here's a link to one of those public comments, what the Investment Company Institute (the trade group for mutual funds and such) has had to say.
The ICI isn't happy. It has concluded "that the proposal would have a disproportionate impact on investment companies and would create significant difficulties for investment companies in achieving quorums and electing ... directors."
For now, I'll leave the issue there, although of course I'll be very happy to hear reactions from readers of this humble blog.
Tuesday, March 31, 2009
Monday, March 30, 2009
Marks & Spencer
Marks & Spencer, the big Brit retailer, (clothing, food, furniture, etc.) holds its annual shareholders meeting in July.
The key thing to know about M&S in the run-up to that meeting is that its chief executive, Stuart Ross, is also the chairman of the board.
The idea of one person holding both of those titles is customary enough in the United States, but unusual in the Mother Country, and that is what one of the institutional shareholders of M&S is challenging.
In fact, at last year's meeting, 22% of investors voted against Ross as chairman, an extraordinary degree of shareholder rebellion.
The Local Authority Pension Fund Forum, which claims to control more than 1% of M&S equity, said today that it is offering a resolution at this year's meeting to appoint an independent chairman by July 2010. Such a resolution would need the support of 75% of M&S shares to pass.
This sounds a bit quixotic but .... hey, who am I to deny the appeal of the knight of doleful countenance.
“The separation of powers at the head of a company is a fundamental governance principle, and one that is accepted by the rest of the market,” said the LAPFF Chairman in a statement.
The key thing to know about M&S in the run-up to that meeting is that its chief executive, Stuart Ross, is also the chairman of the board.
The idea of one person holding both of those titles is customary enough in the United States, but unusual in the Mother Country, and that is what one of the institutional shareholders of M&S is challenging.
In fact, at last year's meeting, 22% of investors voted against Ross as chairman, an extraordinary degree of shareholder rebellion.
The Local Authority Pension Fund Forum, which claims to control more than 1% of M&S equity, said today that it is offering a resolution at this year's meeting to appoint an independent chairman by July 2010. Such a resolution would need the support of 75% of M&S shares to pass.
This sounds a bit quixotic but .... hey, who am I to deny the appeal of the knight of doleful countenance.
“The separation of powers at the head of a company is a fundamental governance principle, and one that is accepted by the rest of the market,” said the LAPFF Chairman in a statement.
Sunday, March 29, 2009
UK Rules for Disclosure of Derivatives
The Financial Services Authority in the United Kingdom has adopted final rules requiring disclosure of options and other equity derivatives.
This has long been a hot issue both in the US and the UK. In both countries, regulators have rules that are supposed to prevent takeover by stealth. When one company or investor or fund owns a sizeable share in another -- ignore the specific threshold amounts just now -- it is supposed to disclose the fact.
But lately the growth of equity derivatives of a sort that (a) may allow for the indirect exercise of power over an issuer yet (b) don't count against the threshold, has raised the specter again of the sort of takeovers by stealth the regulators had belived themselves to have exorcised decades before.
In the US, the question of how to treat such equity derivatives has been addressed only in a very piecemeal fashion. The recent CSX decision spoke to it, and the appeals process might have yielded something more authoritative, but the parties have settled their dispute.
In the UK, though, the FSA has taken the question on more directly. Here's the link.
Don't be confused by the rather modest title of the paper. The new rules cover not just "contracts for difference," but other derivatives with similar effects.
This has long been a hot issue both in the US and the UK. In both countries, regulators have rules that are supposed to prevent takeover by stealth. When one company or investor or fund owns a sizeable share in another -- ignore the specific threshold amounts just now -- it is supposed to disclose the fact.
But lately the growth of equity derivatives of a sort that (a) may allow for the indirect exercise of power over an issuer yet (b) don't count against the threshold, has raised the specter again of the sort of takeovers by stealth the regulators had belived themselves to have exorcised decades before.
In the US, the question of how to treat such equity derivatives has been addressed only in a very piecemeal fashion. The recent CSX decision spoke to it, and the appeals process might have yielded something more authoritative, but the parties have settled their dispute.
In the UK, though, the FSA has taken the question on more directly. Here's the link.
Don't be confused by the rather modest title of the paper. The new rules cover not just "contracts for difference," but other derivatives with similar effects.
Wednesday, March 25, 2009
three brief items
1. Routine votes from brokers
The Securities and Exchange Commission has recently put out for comment a proposed amendment to NYSE rule 452. This rule allows brokers to cast votes on certain routine matters on a client/investor's behalf, if that investor (the beneficial owner) has not provided specific instructions to the broker at least 10 days before a scheduled meeting.
The significance of the practice is that it helps companies meet quorum requirements for those boring issues real people don't care about.
But of course there is lots of room for debate over what should or shouldn't count as a routine issue for this purpose. I hope to have something more to say here along these lines next week.
2. Orthofix resisting Ramius nominees
Ramius LLC and affiliated entities are trying to put three nominees on the board of the orthopedics-product company Orthofix. The nominees are: J. Michael Egan, Peter A. Feld and Charles T. Orsatti. If successful, they will replace current Chairman of the Board James F. Gero, and directors Peter J. Hewett and Walter P. Von Wartburg.
Orthofix is resisting, and the matter will presumably be resolved by or at a special meeting of the company's shareholders on April 2.
Proxy Governance Inc. has issued its own report on this contest, in which it said: "The problem with the dissident campaign is not an inability to evaluate what went wrong, but the profound absense of a plan to effect a credible recovery."
Orthofix is of course ensuring that everybody knows that PGI has said this.
3. CV Therapeutics takeover bid ends
Astellas Pharma, a Japanese company, announced last week the end of its hostile bid for CV Therapeutics. It had made a tender offer of $16 a share.
Astellas was outbid by Gilead Sciences, and Astellas says that it doesn't see value for its shareholders in trying to top Gilead's offer of $20 a share.
My impression is that there is a lot of dry powder out there, especially in the far East. Companies have responded to the crises of the last year and a half by selling assets and holding cash. Now they're tire of cash. Cash is boring. They want to put it to work. We may see a lot of merger and acquisition activity and even some bidding wars coming down the pike, and this one may look like a harbinger.
Gilead and CV are both California-based companies, so this is a neighbor-buys-neighbor story. But not every Far Eastern bidder will withdraw with such quiet grace.
The Securities and Exchange Commission has recently put out for comment a proposed amendment to NYSE rule 452. This rule allows brokers to cast votes on certain routine matters on a client/investor's behalf, if that investor (the beneficial owner) has not provided specific instructions to the broker at least 10 days before a scheduled meeting.
The significance of the practice is that it helps companies meet quorum requirements for those boring issues real people don't care about.
But of course there is lots of room for debate over what should or shouldn't count as a routine issue for this purpose. I hope to have something more to say here along these lines next week.
2. Orthofix resisting Ramius nominees
Ramius LLC and affiliated entities are trying to put three nominees on the board of the orthopedics-product company Orthofix. The nominees are: J. Michael Egan, Peter A. Feld and Charles T. Orsatti. If successful, they will replace current Chairman of the Board James F. Gero, and directors Peter J. Hewett and Walter P. Von Wartburg.
Orthofix is resisting, and the matter will presumably be resolved by or at a special meeting of the company's shareholders on April 2.
Proxy Governance Inc. has issued its own report on this contest, in which it said: "The problem with the dissident campaign is not an inability to evaluate what went wrong, but the profound absense of a plan to effect a credible recovery."
Orthofix is of course ensuring that everybody knows that PGI has said this.
3. CV Therapeutics takeover bid ends
Astellas Pharma, a Japanese company, announced last week the end of its hostile bid for CV Therapeutics. It had made a tender offer of $16 a share.
Astellas was outbid by Gilead Sciences, and Astellas says that it doesn't see value for its shareholders in trying to top Gilead's offer of $20 a share.
My impression is that there is a lot of dry powder out there, especially in the far East. Companies have responded to the crises of the last year and a half by selling assets and holding cash. Now they're tire of cash. Cash is boring. They want to put it to work. We may see a lot of merger and acquisition activity and even some bidding wars coming down the pike, and this one may look like a harbinger.
Gilead and CV are both California-based companies, so this is a neighbor-buys-neighbor story. But not every Far Eastern bidder will withdraw with such quiet grace.
Tuesday, March 24, 2009
HudBay board admits defeat
The meeting scheduled for tomorrow for shareholders of the Toronto-based mining company has been cancelled.
HudBay's board members yesterday acknowledged their defeat in the proxy campaign waged by SRM Global Master Fund LP, a hedge fund based in Monaco that itself controls 11% of the issuer's stock.
Faithful readers will remember my post of March 11th in which I described the incumbent board's efforts to maintain control by sacrificing the CEI, Allen Palmiere.
It obviously didn't work. Here is the statement of capitulation.
HudBay is traded on the Toronto Stock Exchange with the ticker symbol HBM. Its price rose 17 cents yesterday on the news of the incoming SRM-nominated board members.
The one-year chart above shows a deterioration of price through most of last year and a slow recovery through the first quarter of 2009, perhaps in anticipation of this result of the ongoing proxy contest.
Monday, March 23, 2009
Geithner Banks
Front page headline of today's Wall Street Journal, "Geithner Banks on Private Cash."
When I first read that, I saw the word "banks" as a noun, and Geithner as an adjective. I tried to makle sense out of that: what kind of bank is a Geithner bank, anyway?
It took me a few seconds to mentally transform "banks" into a verb and read the headline as a sentence in which the Treasury Secretary's name is the subject.
Brad DeLong explains in Seeking Alpha that the gist of the plan is to make the US Treasury the world's biggest hedge fund investor.
As the plan unfolds we might have plenty of opportunity to discover what kind of institution might deserve the name "a Geithner Bank"!
When I first read that, I saw the word "banks" as a noun, and Geithner as an adjective. I tried to makle sense out of that: what kind of bank is a Geithner bank, anyway?
It took me a few seconds to mentally transform "banks" into a verb and read the headline as a sentence in which the Treasury Secretary's name is the subject.
Brad DeLong explains in Seeking Alpha that the gist of the plan is to make the US Treasury the world's biggest hedge fund investor.
As the plan unfolds we might have plenty of opportunity to discover what kind of institution might deserve the name "a Geithner Bank"!
Sunday, March 22, 2009
More than just not taking personal advantage
The Harvard Program on Corporate Governance has issued a discussion paper entitled, "Loyalty's Core Demand: The Defining Role of Good Faith in Corporation Law."
The authors predict that "the legal standards used to evaluate whether directors have complied with their fiduciary duties will be a subject of growing international policy interest" -- not a lot of risk to that call, IMHO.
The abstract of the paper says this: We conclude, consistent with the Delaware Supreme Court’s recent decision in Stone v. Ritter, that in the American corporate law tradition, the basic definition of the duty of loyalty is the obligation to act in good faith to advance the best interests of the corporation. What this article also shows is that the duty of loyalty has traditionally been conceived of as being much broader than the duty to avoid acting for personal financial advantage. The duty of loyalty also precludes acting for unlawful purposes, and affirmatively requires directors to make a good faith effort to monitor the corporation’s affairs and compliance with law.
The authors? Lawrence Hamermesh, R. Franklin Balotti, Jeffrey M. Gorris, and (surely the most newsworthy so I saved it for last) Leo E. Strine Jr.
Strine's views will have extra weight with many readers because he is Vice Chancellor, Delaware Court of Chancery.
Enjoy the read.
The authors predict that "the legal standards used to evaluate whether directors have complied with their fiduciary duties will be a subject of growing international policy interest" -- not a lot of risk to that call, IMHO.
The abstract of the paper says this: We conclude, consistent with the Delaware Supreme Court’s recent decision in Stone v. Ritter, that in the American corporate law tradition, the basic definition of the duty of loyalty is the obligation to act in good faith to advance the best interests of the corporation. What this article also shows is that the duty of loyalty has traditionally been conceived of as being much broader than the duty to avoid acting for personal financial advantage. The duty of loyalty also precludes acting for unlawful purposes, and affirmatively requires directors to make a good faith effort to monitor the corporation’s affairs and compliance with law.
The authors? Lawrence Hamermesh, R. Franklin Balotti, Jeffrey M. Gorris, and (surely the most newsworthy so I saved it for last) Leo E. Strine Jr.
Strine's views will have extra weight with many readers because he is Vice Chancellor, Delaware Court of Chancery.
Enjoy the read.
Wednesday, March 18, 2009
The Bear Stearns Securities Fraud Case Revisited
Let us revisit the Cioffi and Tannin matter. These two men, former Bear Stearns executives, were arrested June 2008 in connection with the collapse of two hedge funds under Bear sponsorship the preceding summer.
Both defendants are charged with securities fraud in that they made false and misleading statements to the investors about the health of these funds beginning in March. On the prosecution theory, they both understood by March that the funds were "toast" but continued to put on a happy face to the outside world.
The trial date is September 28 of this year.
I bring it up because there has been some motion practice in recent days. For example, Matthew Tannin's attorneys at Brune & Richards have filed a motion for a bill of particulars.
The indictment, as they paraphrase it in the memorandum supporting this motion, quotes selectively from certain e-mails, "apparently in an attempt to give an example of the alleged misstatements and ommissions falling into the categories it identifies."
But the indictment doesn't contain the phrase "to wit". When a bill of indictment says, "John Smith committed offense X, to wit he met in a room on March 10th with five accomplices and...." the phrase "to wit" means that the meeting in that room and what transpired there constitutes the offense X.
The indictment doesn't contain that phrase. The specifics offered are only meant, it appears, as examples of the misstatements, not as a complete account.
Tannin's lawyers understandably don't want to go into trial against an open-ended indictment. They want the government to be specific about each and every act that on its theory constitutes part of the offense. It has been a long long time since I took a Crim Pro course, and I'll be curious to see how this pans out.
There's also the question of Brady material. This relates to a rule announced by SCOTUS in 1963, that the government must disclose all exculpatory material in its possession, including such material as may assist defense counsel in impeaching prosecution witnesses. Apparently as part of the discovery process thus far the government has produced notes of its interviews with Raymond McGarrigal, one of the portfolio managers of the funds, a man who worked side by side with the two defendants during the crucial period and thus at least potentially a crucial witness.
Most of the McGarrigal material provided to the defendats, though, is blacked out. "Redacted," in the fancier term. Defense counsel says there is enough there to indicate McGarrigal made a series of highly exculpatory statements, and it wants to know what they were.
I'm sure the government has offered some justification for the redacting. I haven't done enough searchuing through the PACER materials yet to discover what it is, though.
It sounds as if the judge is going to have to navigate a minefield even to get this case to trial.
Both defendants are charged with securities fraud in that they made false and misleading statements to the investors about the health of these funds beginning in March. On the prosecution theory, they both understood by March that the funds were "toast" but continued to put on a happy face to the outside world.
The trial date is September 28 of this year.
I bring it up because there has been some motion practice in recent days. For example, Matthew Tannin's attorneys at Brune & Richards have filed a motion for a bill of particulars.
The indictment, as they paraphrase it in the memorandum supporting this motion, quotes selectively from certain e-mails, "apparently in an attempt to give an example of the alleged misstatements and ommissions falling into the categories it identifies."
But the indictment doesn't contain the phrase "to wit". When a bill of indictment says, "John Smith committed offense X, to wit he met in a room on March 10th with five accomplices and...." the phrase "to wit" means that the meeting in that room and what transpired there constitutes the offense X.
The indictment doesn't contain that phrase. The specifics offered are only meant, it appears, as examples of the misstatements, not as a complete account.
Tannin's lawyers understandably don't want to go into trial against an open-ended indictment. They want the government to be specific about each and every act that on its theory constitutes part of the offense. It has been a long long time since I took a Crim Pro course, and I'll be curious to see how this pans out.
There's also the question of Brady material. This relates to a rule announced by SCOTUS in 1963, that the government must disclose all exculpatory material in its possession, including such material as may assist defense counsel in impeaching prosecution witnesses. Apparently as part of the discovery process thus far the government has produced notes of its interviews with Raymond McGarrigal, one of the portfolio managers of the funds, a man who worked side by side with the two defendants during the crucial period and thus at least potentially a crucial witness.
Most of the McGarrigal material provided to the defendats, though, is blacked out. "Redacted," in the fancier term. Defense counsel says there is enough there to indicate McGarrigal made a series of highly exculpatory statements, and it wants to know what they were.
I'm sure the government has offered some justification for the redacting. I haven't done enough searchuing through the PACER materials yet to discover what it is, though.
It sounds as if the judge is going to have to navigate a minefield even to get this case to trial.
Tuesday, March 17, 2009
JP Morgan
JPMorgan Chase & Co. has (unsuccessfully) tried to get permission from the Securities and Exchange Commission to exclude from its proxy statement a shareholder proposal that would require bonuses to be paid over a period of three years rather than as a lump sum.
The idea, put forward by AFSCME, is intended to tie bonus payments more closely to a long-term horizon for performance. Under the proposal that now must be included in the proxies, if performance slumps before the second or third installments of an incentive bonus, the bank will be able to make a cut.
If AIG had had such a system in place, the present controvery over its bonus system might be muted a bit. For the outrage isn't merely at the fact that "this is taxpayer money you're spending." The outrage at AIG, I think, has something to do also with the perception that bonuses pay good deal makers. It is the sheer making of the deals, and their quantity, that is often rewarded, not their long-term workability.
At any rate, if anyone involved in the AFSCME proposal is reading: congratulations. Your proposal seems to me to be an intelligent way of protecting the pensions of your members workingt hrough the existing proxy system.
The idea, put forward by AFSCME, is intended to tie bonus payments more closely to a long-term horizon for performance. Under the proposal that now must be included in the proxies, if performance slumps before the second or third installments of an incentive bonus, the bank will be able to make a cut.
If AIG had had such a system in place, the present controvery over its bonus system might be muted a bit. For the outrage isn't merely at the fact that "this is taxpayer money you're spending." The outrage at AIG, I think, has something to do also with the perception that bonuses pay good deal makers. It is the sheer making of the deals, and their quantity, that is often rewarded, not their long-term workability.
At any rate, if anyone involved in the AFSCME proposal is reading: congratulations. Your proposal seems to me to be an intelligent way of protecting the pensions of your members workingt hrough the existing proxy system.
Monday, March 16, 2009
Settlement agreement at Agilysys
Ramius has settled its dispute with issuer Agilysys, an IT contractor for companies in the retail and hospitality markets.
Ramius owns approximately 13% of Agilysys' shares, and has expressed its unhappiness with a "misguided, poorly executed acquisition strategy."
A shareholders meeting, scheduled for March 26, will now be shorn of drama.
It appears that Agilysys had to throw two of their own overboard. Directors Charles Christ and Eileen Rudden have resigned. They'll be replaced by two of Ramius' nominees, John Mutch and Steve Tepedino.
Here's some bio on the two new directors, from the settlement announcement:
Mutch (age 52) is the founder and a Managing Partner of MV Advisors, LLC, a firm that provides focused investment and strategic guidance to small- and mid-cap technology companies. In March 2003, Mutch was appointed to the Board of Directors of Peregrine Systems Inc. (“Peregrine”), a global enterprise software provider, to assist Peregrine and its management in development of a plan of reorganization, which ultimately led to Peregrine’s emergence from bankruptcy. Mutch served as President and Chief Executive Officer of Peregrine from August 2003 to December 2005 through its acquisition by Hewlett-Packard. Mutch is currently a director of Edgar Online, Inc., Adaptec, Inc. and Aspyra, Inc.
Tepedino (age 47) is a co-founder of Channel Savvy LLC, a management consulting firm specializing in technology channels, where he has served as President and Chief Executive officer since May 2006. Additionally, since that time Tepedino served as a Member of JET Creative LLC, a management consulting company specializing in the information technology industry. From 1984 to 2006, Tepedino worked in various positions at Avnet, Inc., a Fortune 500 company focused on global technology distribution.
As part of the settlementk, too, the company has disbanded its special committee formed to oversee its "strategic alternatives." If or when it creates a new such committee, one of the two new Ramius Directors will be a member.
Ramius owns approximately 13% of Agilysys' shares, and has expressed its unhappiness with a "misguided, poorly executed acquisition strategy."
A shareholders meeting, scheduled for March 26, will now be shorn of drama.
It appears that Agilysys had to throw two of their own overboard. Directors Charles Christ and Eileen Rudden have resigned. They'll be replaced by two of Ramius' nominees, John Mutch and Steve Tepedino.
Here's some bio on the two new directors, from the settlement announcement:
Mutch (age 52) is the founder and a Managing Partner of MV Advisors, LLC, a firm that provides focused investment and strategic guidance to small- and mid-cap technology companies. In March 2003, Mutch was appointed to the Board of Directors of Peregrine Systems Inc. (“Peregrine”), a global enterprise software provider, to assist Peregrine and its management in development of a plan of reorganization, which ultimately led to Peregrine’s emergence from bankruptcy. Mutch served as President and Chief Executive Officer of Peregrine from August 2003 to December 2005 through its acquisition by Hewlett-Packard. Mutch is currently a director of Edgar Online, Inc., Adaptec, Inc. and Aspyra, Inc.
Tepedino (age 47) is a co-founder of Channel Savvy LLC, a management consulting firm specializing in technology channels, where he has served as President and Chief Executive officer since May 2006. Additionally, since that time Tepedino served as a Member of JET Creative LLC, a management consulting company specializing in the information technology industry. From 1984 to 2006, Tepedino worked in various positions at Avnet, Inc., a Fortune 500 company focused on global technology distribution.
As part of the settlementk, too, the company has disbanded its special committee formed to oversee its "strategic alternatives." If or when it creates a new such committee, one of the two new Ramius Directors will be a member.
Sunday, March 15, 2009
Google's options
Google announced this week that it has re-priced 7.64 million stock options belonging to 15,642 non-executive employees.
Why? The stock's price (NASDAQ: GOOG) has taken a beating in the last year, not unlike everybody else's. It peaked at $594.90 in early May 2008, then tumbled to $259.56 on November 20. That represents a loss of about 56% percent of value, peak to trough.
There was some recovery (post-election optimism? Your call) so that on February 9, GOOG closed at $378.77. The optimism has worn thin, and the stock was back down to $308.57 when they made the announcement changing the options terms Tuesday.
A stock option has an "exercise price." The idea of giving options to employees of course is that it gives them the incentive to work to get the actual price well above the exercise price, so that they can garner the difference when they cash in.
But Google's employees have of late found themselves with options on $300 stock with an exercise price that was reasonable when they were at the peak -- $500 a share or higher. That far underwater, incentive effects are hard to imagine.
Look for such deals to become a contentious issue in the months to come, though, as stockholders worry about the dilution of the value of their stocks for the benefit of employees. Likely ticked-off shareholder argument: "Do we really need to worry about incentive effects in today's labor market? Will the top talent in Google's fields leave? If so, where will they go? who is hiring?"
Why? The stock's price (NASDAQ: GOOG) has taken a beating in the last year, not unlike everybody else's. It peaked at $594.90 in early May 2008, then tumbled to $259.56 on November 20. That represents a loss of about 56% percent of value, peak to trough.
There was some recovery (post-election optimism? Your call) so that on February 9, GOOG closed at $378.77. The optimism has worn thin, and the stock was back down to $308.57 when they made the announcement changing the options terms Tuesday.
A stock option has an "exercise price." The idea of giving options to employees of course is that it gives them the incentive to work to get the actual price well above the exercise price, so that they can garner the difference when they cash in.
But Google's employees have of late found themselves with options on $300 stock with an exercise price that was reasonable when they were at the peak -- $500 a share or higher. That far underwater, incentive effects are hard to imagine.
Look for such deals to become a contentious issue in the months to come, though, as stockholders worry about the dilution of the value of their stocks for the benefit of employees. Likely ticked-off shareholder argument: "Do we really need to worry about incentive effects in today's labor market? Will the top talent in Google's fields leave? If so, where will they go? who is hiring?"
Wednesday, March 11, 2009
Palmiere resigns at HudBay Minerals
HudBay Minerals is a mining company working copper and zinc deposits especially in Manitobe. It trades on the Toronto Stock Exchange.
Its chief executive, Allen Palmiere, has resigned in the face of shareholder discontent resulting from a failed effort to acquire Lundin Mining, another Toronto-listed compamy, last year.
SRM Global Master Fund LP is seeking to replace the whole board at HudBay, and a special meeting has been called for March 25 at SRM's request for the purpose of this vote.
The official announcement of Palmiere's departure says the usual nice things: "The Board of Directors thanks Allen for his service to HudBay, first as chairman, then as chief executive officer and director." But there is no effort to answer the obvious question: why?
SRM doesn't call the shots yet, surely, so its discontent can't be the only operating factor here. Did Palmiere jump or was he pushed?
Let's get the Sccoby-Doo gang to work on this mystery. Maybe the new interim CEO, Colin Benner, will end up telling them "I would have gotten away with it too, if not for you meddling kids!"
Probably not. I'm just free associating.
Its chief executive, Allen Palmiere, has resigned in the face of shareholder discontent resulting from a failed effort to acquire Lundin Mining, another Toronto-listed compamy, last year.
SRM Global Master Fund LP is seeking to replace the whole board at HudBay, and a special meeting has been called for March 25 at SRM's request for the purpose of this vote.
The official announcement of Palmiere's departure says the usual nice things: "The Board of Directors thanks Allen for his service to HudBay, first as chairman, then as chief executive officer and director." But there is no effort to answer the obvious question: why?
SRM doesn't call the shots yet, surely, so its discontent can't be the only operating factor here. Did Palmiere jump or was he pushed?
Let's get the Sccoby-Doo gang to work on this mystery. Maybe the new interim CEO, Colin Benner, will end up telling them "I would have gotten away with it too, if not for you meddling kids!"
Probably not. I'm just free associating.
Tuesday, March 10, 2009
The blunderer who is Ben
Curiouser and curiouser. In Sunday's New York Times, 'economics' columnist Ben Stein comes out against speculative portion of the CDS market.
This kind of stance is one of those bonehead simplifications of a complicated subject that appeal to people who want to think they are sophisticated without having to do a lot of wonkish reading. You know. People like ... Ben Stein.
Here's a link to his column for those of you with a subscription to the NYT.
And here is the bit that has provoked my ire:
ADD A RULE Don’t allow speculators with no insurable interest to buy credit-default swaps on bonds.
When used properly, these instruments can function as a legitimate kind of insurance. Yes, if you are a real buyer of the bonds of a given company, you should be able to buy insurance. But you shouldn’t if you are just a shark circling prey, bringing blood into the water.
Allowing speculators to buy C.D.S.’s merely to bet against a firm in difficulty just blasts the prices of bonds, kills the balance sheets of banks, insurers and hedge funds, and throws fear into the system.
First, it is absurd to try to draw a sharp distinction between the "legitimate insurance" use of a CDS and the illegitimate speculative use. Those speculators provide precious liquidity for the market. If you have GM bonds in your portfolio, and you want to buy default protection, you'll be glad that there are counterparties in the market willing to sell protection to you. And part of the reason there will be such counterparties in the market is that there are speculators to whom they can sell. The speculators, in other words, increase the size of the overall pool, making life easier for the hedgers who need to wade into it.
Second, on any CDS contract, whether hedging or speculative, there is a winner as well as a loser. If a hedge fund makes a speculative bet that GM will fail, it is because and to the extent that somnebody else -- typically, a bank or insurance company -- has made a speculative bet that it will survive for the life of the contract. Stein doesn't even explain: which side of that bet is the public policy problem? Which side is the "shark," which side is the "prey"? If the protection is sold too cheaply, the bank has taken a foolish position. But on that same presumption, the hedge fund has made a wise decision. The outcome isn't going to "killl the balance sheet" of them both.
Third, in more general terms, why shouldn't we expect that a liquid market in CDS will cause prices, i.e. spreads, to move to an equilibrium that won't represent a foolish decision on either side?
There are some necessary changes in the CDS marketplace. Central clearing and settlement would be a good idea, and some standardization of product is probably necessary to make that happen. Such developments are underway. But Stein blunders right through all of that, cognizant of none of the real issues because he just wants somebody -- the SEC? the CFTC/ Treasury? Congress? it doesn't really matter -- he just wants somebody to "add a rule".
This kind of stance is one of those bonehead simplifications of a complicated subject that appeal to people who want to think they are sophisticated without having to do a lot of wonkish reading. You know. People like ... Ben Stein.
Here's a link to his column for those of you with a subscription to the NYT.
And here is the bit that has provoked my ire:
ADD A RULE Don’t allow speculators with no insurable interest to buy credit-default swaps on bonds.
When used properly, these instruments can function as a legitimate kind of insurance. Yes, if you are a real buyer of the bonds of a given company, you should be able to buy insurance. But you shouldn’t if you are just a shark circling prey, bringing blood into the water.
Allowing speculators to buy C.D.S.’s merely to bet against a firm in difficulty just blasts the prices of bonds, kills the balance sheets of banks, insurers and hedge funds, and throws fear into the system.
First, it is absurd to try to draw a sharp distinction between the "legitimate insurance" use of a CDS and the illegitimate speculative use. Those speculators provide precious liquidity for the market. If you have GM bonds in your portfolio, and you want to buy default protection, you'll be glad that there are counterparties in the market willing to sell protection to you. And part of the reason there will be such counterparties in the market is that there are speculators to whom they can sell. The speculators, in other words, increase the size of the overall pool, making life easier for the hedgers who need to wade into it.
Second, on any CDS contract, whether hedging or speculative, there is a winner as well as a loser. If a hedge fund makes a speculative bet that GM will fail, it is because and to the extent that somnebody else -- typically, a bank or insurance company -- has made a speculative bet that it will survive for the life of the contract. Stein doesn't even explain: which side of that bet is the public policy problem? Which side is the "shark," which side is the "prey"? If the protection is sold too cheaply, the bank has taken a foolish position. But on that same presumption, the hedge fund has made a wise decision. The outcome isn't going to "killl the balance sheet" of them both.
Third, in more general terms, why shouldn't we expect that a liquid market in CDS will cause prices, i.e. spreads, to move to an equilibrium that won't represent a foolish decision on either side?
There are some necessary changes in the CDS marketplace. Central clearing and settlement would be a good idea, and some standardization of product is probably necessary to make that happen. Such developments are underway. But Stein blunders right through all of that, cognizant of none of the real issues because he just wants somebody -- the SEC? the CFTC/ Treasury? Congress? it doesn't really matter -- he just wants somebody to "add a rule".
Monday, March 9, 2009
Southern Union
Southern Union Co says it has reached an agreement with shareholder Sandell Asset Management Corp, and others known collectively as the "the Sandell Group," to avoid a proxy contest at its 2009 stockholders meeting.
Southern Union said it will increase the number of seats on its board, from ten to twelve, and two members previously nominated by Sandell to its board of directors will be nominated as part of the management slate during its 2009 and 2010 annual meetings.
Sandell, in turn, agrees that it will vote its shares in favor of the whole of that slate and desist from further roiling the corporate waters, i.e. observe a standstill agreement -- apparently lasting throughout 2009, although the wording of the timing of the standstill isn't all that clear to me.
Sandell now owns 8.6 percent of Southern Union's outstanding shares.
The agreement contains one provision I find intriguing. The two seats Sandell gets on the board come in return for an assurance it won't sell off its stake. "In the event that the Sandell Group were to own less than 5% of the Company’s outstanding common stock, the Sandell Nominees must offer to resign from the Board."
I don't believe that sort of clause is a customary part of standstill agreements. Maybe it's an artifact of the ongoing Bear market.
Southern Union said it will increase the number of seats on its board, from ten to twelve, and two members previously nominated by Sandell to its board of directors will be nominated as part of the management slate during its 2009 and 2010 annual meetings.
Sandell, in turn, agrees that it will vote its shares in favor of the whole of that slate and desist from further roiling the corporate waters, i.e. observe a standstill agreement -- apparently lasting throughout 2009, although the wording of the timing of the standstill isn't all that clear to me.
Sandell now owns 8.6 percent of Southern Union's outstanding shares.
The agreement contains one provision I find intriguing. The two seats Sandell gets on the board come in return for an assurance it won't sell off its stake. "In the event that the Sandell Group were to own less than 5% of the Company’s outstanding common stock, the Sandell Nominees must offer to resign from the Board."
I don't believe that sort of clause is a customary part of standstill agreements. Maybe it's an artifact of the ongoing Bear market.
Sunday, March 8, 2009
Regions Financial
The staff at the Securities and Exchange Commission has denied a "no action" request from Regions Financial relating to proxy access.
"No action" requests are a fairly routine part of regulatory proceedings in such contexts. A company writes to the SEC, saying, "We are thinking about doing A, B, and C," -- can you assure us this would result in no enforcement action?"
The staff's no-action assurance is always heavily qualfied ("given all the facts and conditions as you have outlined them, etc.") and has no precedential significance.
But that Regions Financial sought and failed to receive a no-action assurance in this area is, just possibly, a straw in the wind concerning the post-Madoff, Obama era SEC.
Shareholder activists have sought to get a proxy vote at Regions -- a participant in the government's TARP Capital Purchase Program -- concerning restrictions on executive compensation there. The management wanted to exclude that proposal. Now, though, since the SEC won't promise that it would take no action against them over the exclusion, there will likely be a vote on the proposed compensation restrictions.
Here's a link to the staff's letter.
"No action" requests are a fairly routine part of regulatory proceedings in such contexts. A company writes to the SEC, saying, "We are thinking about doing A, B, and C," -- can you assure us this would result in no enforcement action?"
The staff's no-action assurance is always heavily qualfied ("given all the facts and conditions as you have outlined them, etc.") and has no precedential significance.
But that Regions Financial sought and failed to receive a no-action assurance in this area is, just possibly, a straw in the wind concerning the post-Madoff, Obama era SEC.
Shareholder activists have sought to get a proxy vote at Regions -- a participant in the government's TARP Capital Purchase Program -- concerning restrictions on executive compensation there. The management wanted to exclude that proposal. Now, though, since the SEC won't promise that it would take no action against them over the exclusion, there will likely be a vote on the proposed compensation restrictions.
Here's a link to the staff's letter.
Wednesday, March 4, 2009
Circuit City RIP
It seems certain now that Circuit City's bankruptcy proceedings are coming to an end as a liquidation, that hope for a reorganization and survival is gone.
The House subcomittee on commercial and administrative law, a panel of the House Judiciary Committee, had planned to take testimony from CC executives with an eye to potential amendments of bankruptcy law but that hearing was cancelled yesterday morning, apparently due to weather.
It appears that the executives wanted to complain largely about the way in which leases are treated under the 2005 amendments. It appears that before that year it was easier than it is now for a debtor to string out an old lease at the expense of its landlord.
Personally, I can't work up any sympathy for CC on that point -- unless there is something to it that I don't yet understand (very possible). But why should debtors be assistesd at the expense of their commercial lessors? Amending the law one way or the other on that point sounds like a zero-sum game to me.
[Subsequent interpolation, 3-5-09: The hearing has been rescheduled for 3-11, Wednesday, at 2 PM].
This is pertinent to general subject of this blog, the use of proxy campaigns to exercise power in and over the corporate suite ... how?
Circuit City is an example of a proxy partisan unheeded. It now appears obvious that the activist investors of HBK Capital Management were in the right a year ago, when they tried to get CC to sell itself to Blockbusters. That would have been the best way to maximize the equity that was then rapidly vanishing.
The House subcomittee on commercial and administrative law, a panel of the House Judiciary Committee, had planned to take testimony from CC executives with an eye to potential amendments of bankruptcy law but that hearing was cancelled yesterday morning, apparently due to weather.
It appears that the executives wanted to complain largely about the way in which leases are treated under the 2005 amendments. It appears that before that year it was easier than it is now for a debtor to string out an old lease at the expense of its landlord.
Personally, I can't work up any sympathy for CC on that point -- unless there is something to it that I don't yet understand (very possible). But why should debtors be assistesd at the expense of their commercial lessors? Amending the law one way or the other on that point sounds like a zero-sum game to me.
[Subsequent interpolation, 3-5-09: The hearing has been rescheduled for 3-11, Wednesday, at 2 PM].
This is pertinent to general subject of this blog, the use of proxy campaigns to exercise power in and over the corporate suite ... how?
Circuit City is an example of a proxy partisan unheeded. It now appears obvious that the activist investors of HBK Capital Management were in the right a year ago, when they tried to get CC to sell itself to Blockbusters. That would have been the best way to maximize the equity that was then rapidly vanishing.
Tuesday, March 3, 2009
Alienation of affections in Aussie coal world
Gloucester Coal Ltd is an Australian mining company that announced on February 20th its plan to merge with a another such company, Whitehaven Coal.
Noble Group, a commodity trading concern based in Hong Kong, is a 21.7% shareholder of Gloucester, and is unhappy with the deal -- in effect though not in form, it is a takeover of Glocester by Whitehaven.
Anyway, for reasons that aren't clear to me, the planned Glocester/Whitehaven transaction doesn't require shareholder approval. Noble doesn't have the opportunity, then, to duisrupt the deal through a proxy contest.
It has found another route to express its dissatisfaction, though. On February 27, Noble announced its own bid for Gloucesterm at a price of Aus$4.85 per share, advising that the proposal "is subject to the Gloucester Coal bid for Whitecastle not proceeding and certain other prescribed occurrences not occurring" (in the words of a Gloucester press release).
So far, Gloucester's response is simply "we're thinking about it." Or, rather, in press release language, they are "considering the proposal and will respond on it in due course."
Love the preposition "on" in that context? Rather than, say, "to"?
Noble Group, a commodity trading concern based in Hong Kong, is a 21.7% shareholder of Gloucester, and is unhappy with the deal -- in effect though not in form, it is a takeover of Glocester by Whitehaven.
Anyway, for reasons that aren't clear to me, the planned Glocester/Whitehaven transaction doesn't require shareholder approval. Noble doesn't have the opportunity, then, to duisrupt the deal through a proxy contest.
It has found another route to express its dissatisfaction, though. On February 27, Noble announced its own bid for Gloucesterm at a price of Aus$4.85 per share, advising that the proposal "is subject to the Gloucester Coal bid for Whitecastle not proceeding and certain other prescribed occurrences not occurring" (in the words of a Gloucester press release).
So far, Gloucester's response is simply "we're thinking about it." Or, rather, in press release language, they are "considering the proposal and will respond on it in due course."
Love the preposition "on" in that context? Rather than, say, "to"?
Monday, March 2, 2009
Dan Marino's sentence upheld
The 2d circuit court of appeals has denied an appeal by former Bayou principal Dan Marino of the 20 year sentence he received for his role in that fiasco.
The 2d circuit noted, parenthetically, that the trial judge might have been a bit more harsh than she had to be, but she was within the range of her discretion on such a matter.
We pause to note that we might ourselves have given greater weight than apparently did the district court to Marino's plight — his almost complete deafness and accompanying sense of loneliness, his lack of self-esteem, his bouts with cancer, his apparent fear of and deference to Israel — and his assistance to the government detailed in its “5K1 Letter” (noting his aid to the government in understanding the fraud, his immediate contrition and taking of responsibility upon discovery, and his contribution to the guilty pleas of his co-conspirators). But it is not for us to substitute our judgment for that of the district court, whose sentence was procedurally and substantively proper.
Jeffrey Skilling of Enron infamy, had somewhat better luck recently with his appeal. The circuit judges there found that the sentencing had been improper, and Skilling will get a new hearing. These things do have a lottery-like aspect to them.
The 2d circuit noted, parenthetically, that the trial judge might have been a bit more harsh than she had to be, but she was within the range of her discretion on such a matter.
We pause to note that we might ourselves have given greater weight than apparently did the district court to Marino's plight — his almost complete deafness and accompanying sense of loneliness, his lack of self-esteem, his bouts with cancer, his apparent fear of and deference to Israel — and his assistance to the government detailed in its “5K1 Letter” (noting his aid to the government in understanding the fraud, his immediate contrition and taking of responsibility upon discovery, and his contribution to the guilty pleas of his co-conspirators). But it is not for us to substitute our judgment for that of the district court, whose sentence was procedurally and substantively proper.
Jeffrey Skilling of Enron infamy, had somewhat better luck recently with his appeal. The circuit judges there found that the sentencing had been improper, and Skilling will get a new hearing. These things do have a lottery-like aspect to them.
Sunday, March 1, 2009
Ramius sends letter re: Agilsys
In my lazy Sunday-blogging fashion, I'm just going to copy and paste what I saw on this subject on the Business Wire.
NEW YORK, Feb 26, 2009 (BUSINESS WIRE) -- --Urges Shareholders to Elect New, Independent Director Nominees That Have The Experience Necessary To Oversee A Turnaround Of Agilysys.
RCG Starboard Advisors, LLC, together with Ramius LLC and its other affiliates (collectively, the "Ramius Group" or "Ramius"), today announced that it has sent a letter to the shareholders of Agilysys, Inc. ("Agilysys" or the "Company") (NasdaqGS: AGYS) urging shareholders to elect new, independent director nominees at the Company's 2008 Annual Meeting of Shareholders on March 26, 2009. On June 20, 2008, Ramius nominated three highly qualified director candidates, John Mutch, Steve Tepedino, and James Zierick. Ramius, the second largest shareholder of the Company, is the beneficial owner of approximately 13.0% of the Company's outstanding common shares.
Ramius Partner Mark Mitchell stated, "The current Board of Agilysys must be held accountable for its ineffective oversight of a misguided, poorly executed acquisition strategy and extremely weak operating results which have resulted in significant destruction of shareholder value. Management and the Board have had ample opportunity to address the key strategic and operational issues that have affected Agilysys' performance, but have repeatedly failed to do so. Shareholders cannot afford to let the Company continue to make mistakes and destroy shareholder value."
Added Mitchell, "Immediate and substantial change at the Board level is imperative if a turnaround of Agilysys is to succeed. Our independent, knowledgeable, and highly experienced nominees will work diligently to significantly improve the Company's businesses and create substantial value for all shareholders."
NEW YORK, Feb 26, 2009 (BUSINESS WIRE) -- --Urges Shareholders to Elect New, Independent Director Nominees That Have The Experience Necessary To Oversee A Turnaround Of Agilysys.
RCG Starboard Advisors, LLC, together with Ramius LLC and its other affiliates (collectively, the "Ramius Group" or "Ramius"), today announced that it has sent a letter to the shareholders of Agilysys, Inc. ("Agilysys" or the "Company") (NasdaqGS: AGYS) urging shareholders to elect new, independent director nominees at the Company's 2008 Annual Meeting of Shareholders on March 26, 2009. On June 20, 2008, Ramius nominated three highly qualified director candidates, John Mutch, Steve Tepedino, and James Zierick. Ramius, the second largest shareholder of the Company, is the beneficial owner of approximately 13.0% of the Company's outstanding common shares.
Ramius Partner Mark Mitchell stated, "The current Board of Agilysys must be held accountable for its ineffective oversight of a misguided, poorly executed acquisition strategy and extremely weak operating results which have resulted in significant destruction of shareholder value. Management and the Board have had ample opportunity to address the key strategic and operational issues that have affected Agilysys' performance, but have repeatedly failed to do so. Shareholders cannot afford to let the Company continue to make mistakes and destroy shareholder value."
Added Mitchell, "Immediate and substantial change at the Board level is imperative if a turnaround of Agilysys is to succeed. Our independent, knowledgeable, and highly experienced nominees will work diligently to significantly improve the Company's businesses and create substantial value for all shareholders."
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