Sunday, May 31, 2009

Amylin meeting

Th dissidents, Icahn and Eastbourne, did win seats on the board of Amylin Pharmaceuticals, though not as many as they had hoped. They won two of the five seats up for grabs -- there are twelve on the board.

It appears, too, that Icahn's proposal to move the company's state of incorporation to North Dakota was defeated.

The significance of that proposal? See this post for a reminder.

That Icahn has failed to produce that change by resolution is a minor setback for the Dakotan cause -- his board representatives can now press for it at each meeting.

The company announced the results with the following words of reconciliation: :"We thank all of our Directors for their tremendous commitment and contributions to Amylin. Our Board and management team will work with the new Directors to continue to bring transformational medicines to patients and maximize shareholder value."

Wednesday, May 27, 2009

Three meetings

1. Amylin-Icahn update.

Meeting today.

2. Target-Ackman update

Meeting tomorrow.

3. Biovail-Melnyk update

Also a meeting tomorrow, though resolution already seems accompished.

Tuesday, May 26, 2009

More on Tollgrade

What exactly do they do?

The company website will tell you that Tollgrade is "a leading provider of service assurance products and services for centralized test systems around the world. Tolllgrade designs, engineers, markets and supports centralized test systems, test access and status monitoring products, and next generation network assurance technologies. Tollgrade's customers range from the top telecom and cable providers, to numerous independent telecom, cable and broadband providers around the world."

What does this mean?

Near as I understand, Tollgrade's equipment allows those telephone companies they service to monitor their lines from a central office, rather than sending repairmen to test wires on location. Its four biggest customers are the regional Bell operating companies: Verizon, BellSouth, SBC, Qwest.

You can find its company history here.

Ramius' complaint is that over the past five years, ending May 13, 2009, Tollgate's stock price is down about 53%. During the same period, the Nasdaq composite is down only 10%.

The problem, in Ramius' view, is a pattern of pouring "excessive amounts of capital into research and development projects as well as ill-conceived and poorly executed acquisitions."

Obviously, R&D is important to a company like Tollgate. Most of its business is devoted to plain old telephone service (POTS), which may soon prove a historic deadend. R&D is essential to adapt the company to the new directions of the telecomm industry.

Still, Ramius presumably would say -- and will say as this dispute roils onward -- that R&D can not be so large a line item as to beggar the here-and-now operational needs of the company.

Monday, May 25, 2009


Tollgrade Communications, a network-testing company based in Pittsburgh, has responded to the prospect of a proxy contest. The possible dissidents in this case would be Ramius.

Tollgrade's chairman and CEO, Joseph Ferrara, has written to Ramius's principals, along these lines: "Since last spring, after learning that affiliates of Ramius had accumulated close to 10% of the common stock of Tollgrade, we have sought to constructively and respectfully engage with you and other representatives from Ramius. While we remain open to continuing to have those discussions and listening to any ideas and suggestions that Ramius may have on how we may continue to increase value for all shareholders, the disparaging and pejorative tone of your letter and the related press release, together with your overt threat to launch a proxy contest against Tollgrade, does not advance our ability to constructively engage with you or other representatives from Ramius to advance those discussions."

That's too polite folks. Mix it up a bit.

Sunday, May 24, 2009

Forzani Group

Crescendo Partners LP, a New York based hedge fund, and its principal, Eric Rosenfeld, have announced that Crescendo controls 5.1% of the outstanding shares of Forzani Group Ltd., a Calgary based sporting goods retailer, and it is seeking two seats on the board of directors.

Forzani's annual meeting is scheduled for June 10.

I won't get into the dispute here. I'm enjoying the holiday weekend and that would be a bit too much like work. I do want to say, though, that as an aficionado of such letters I enjoyed the panache with which Forzani has resisted Crescendo's demand.

The line of critique is a familiar one, "Their nominees are inexperienced kids -- ours are battle-hardened veterans. Yet Chairman John Forzani, or whoever wrote this for him, makes it sound fresh.

In contrast, Crescendo has put forward a US retail executive who has held five jobs in the past 11 years, none of them with companies having material operations in Quebec or elsewhere in Canada. Two months ago this executive was appointed CEO of a once famous but now struggling private toy store business. Immediately before that he spent a year heading the publicly-traded online retailer Perhaps it wasn't his fault, but while he was in charge the market value of the shares dropped by approximately 75%.

And Crescendo's other nominee?

Crescendo has [also] nominated a young man who obtained his MBA in the graduating class of 2005 (a fact that you won't find in Crescendo's dissident circular). Crescendo touts his experience as an officer of two privately held "blank cheque" companies; in other words, companies that typically exist on paper only and which have no operations. He apparently has no Canadian business background. In 1976, the year before this Crescendo nominee was born, Donald Gass was made a partner at Deloitte & Touche.

Gotta love it.

Wednesday, May 20, 2009

Three brief items

1. SEC Thresholds

There have been reports, though there has as of yet been nothing official from the Securities and Exchange Commission itself, that the SEC is about the propose a new system for the nomination of dissident directors. Dissidents will be able to piggyback on the company's proxy materials if their stock holdings pass certain percentage thresholds.

Specifically, to piggyback on the materials of a small market capitalization companys (below $75 million), the dissident group will need to show that it has owned 5% of the equity for at least a year. For a market cap between $75 and $700 million, that becomes 3% over a year. For a market cap above $700 million, its a mere 1%.

Any such measure, even if adopted (and so far, remember, this is only a report of a coming proposal) would certainly face a court fight, on federalism grounds among others.

2. Shell's executive pay

There's been a rebellion at Royal Dutch Shell. Shareholders have voted "no" in resounding fashion to a remuneration report. The remuneration committee that produced the report is chaired by Sir Peter Job. I just had to mention that because the name seems so blooming appropriate.

Jeroen van der Veer, Shell's CEO, steps down in June. He received a bonus nt he 2006-08 incentive scheme of 1.35 million euros, i.e. $1.84 million dollars, on top of his salary of 2008, of 10.3 euros, which was itself an increase of 58% from the year before.

3. Catching up on Amylin

Amylin Pharmaceutical's annual meeting is now but a week away. Proxy advisory RiskMetrics has advised shareholders to vote in favor of three of the dissident nominees, two from eastbourne's slate and one from Icahn's.

In a letter to shareholders May 15, Amylin expressed disappointment in this, but said that its board and management "have recognized and embraced the need for change."

Then the news got worse for the besieged company. On Monday, the two other major advisory services also recommended the introduction of new blood. Although they don't all agree on which new blood should get into the boardroom, they all agree things need to change.

Tuesday, May 19, 2009

No magic in Islamic finance

There has been talk in some quarters in recent months that Islamic finance offers a safe harbor from the choppy waters of traditional financial markets.

For the uninitiated, "Islamic finance" is a branch of both theory and practice that grows out of Koranic prohibitions on riba, which means "interest" or "usury" depending on to whom you speak.

The need for a special branch of finance arises most pressingly when "riba' is understood broadly, to mean "interest" as such, the making of "money out of money." How does finance work without interest?

There are lots of ways to answer that question. In this post I'll just introduce one more Arabic term, "sukuk," (a plural term) which means literally "financial certificates" or perhaps just "checks." In contemporary parlance, "sukuk" is often used as the Islamic analog of "bonds." Bonds, of course, pay interest, which is bad. What do you get if you buy sukuk? You get a claim against the future profits from a particular asset. Sukuk, then, are akin in some respects to shares of equity (though they are bond-like in possessing a definite maturity date), and their equity-like aspects keep them legit in the eyes of the target market.

Another important point: sukuk bonds tend to be bought once and held to maturity. There is only a small secondary market. The more conservative scholars believe that this buy-and-hold aproach is required, otherwise one gets into a speculative secondary market and the line between Islamic and western finance blurs. Yet that view is not universal: there is a secondary market in sukuk.

Anyway, let me go back to my beginning: there has been some talk in recent months about how Islamic finance is a safe haven.

Alas, it is not the case. Last week, a $100 million sukuk bond by Investment Dar defaulted. Investment Dar is a Kuwait-based investment company which has been around since 1994 and owns half of Aston Martin, the UK car company whose products are featured in the movies about a spy called Sukuk, James Sukuk.

Anyway, if you are unfortunate enough to hold the affected sukuk, you'll have to awair court decisions that will determine whether you'll be treated as a holder of equity or debt. Unless religious convictions impel you powerfully against your monetary interests, you should hope that they find this to be debt.

According to today's Financial Times, the spread on HSBC's leading sukuk index is at four times the pre-crisis level.

So what? So this ... invest in instruments that use Arabic terms if you like, but it won't change the basic facts of supply and demand, or the fact (derived from those) that money has a time value. Europe broke itself out of a long stagnant era by deciding to ignore old bans on interest, and the Islamic world, much of which now needs to concern itself with the wise recycling of petro-wealth, since the days of living off long-dead dinosaur remains are themselves limited, would be well-advised to follow that example.

Monday, May 18, 2009

Glass Lewis supports Chemed nominees

One of the leading proxy advisory firms, Glass Lewis, says this morning it thinks Chemed shareholders should vote in favor of the comnpany's nominees for the board of directors at the annual meeting, scheduled for May 29.

Chemed, an Ohio-based company, is best known for its Roto-Rooter subsidiary, North America's largest provider of plumbing and drain cleaning services. But its main line of business is the Vitas Healthcare Corporation, which runs hospices in 12 states.

That seems an odd and arbitrary combination of businesses. These days the old-fashioned "conglomerate," where businesses with no connection to one another sheltered under a single corporate roof, is in disfavor. The general presumption is that there should be symmetry between or among the parts of the whole. After all, if I as an investor want to diversify my portfolio, I can do so myself. Why should the dversification be accomplished by the corporation rather than by the stockholder?

Anyway, that appears to be the reasoning of the dissidents, led by MMI Investments LP, a New York based hedge fund. They've urged shareholders to elect a new board of directors who would pursue a spin-off of one or the other of these two disparate lines.

Glass Lewis, though, says: "We see no reason to doubt the board's assertion that a separation of the company's ... businesses, while strategically compelling, is not advisable at this time due to market conditions. Furthermore, we have found that the Company's stock price has continued to outperform relevabnt indices in recent years."

On the stock price: Chemed stock trades on the NYSE under the ticker symbol CHE. Its price rose by approximately 7.4% during the two years beginning February 11, 2007. During those same two years, the S&P Small Cap 600 Health Services index declined by 28.1%, and the S&P 500 Index declined by 42%.

Sunday, May 17, 2009

Pinnacle Partners v. Forgent Networks Inc.

Forgent Networks Inc. is the legal name of a Texas-based enterprise that does business as Asure Software and that trades on Nasdaq as ASUR.

Pinnacle Partners LLC is an activist hedge fund run by David Sandberg with a stake in ASUR.

On May 4, 2009, Sandberg filed a Schedule 13D on Pinnacle's behalf announcing his/its intention to initiate a proxy fight in hopes of voting down the "going private" transaction on which the stockholders will vote at a special meeting scheduled for June 2, 2009.

I'll just lazily link you to a further discussion by a less indolent blogger, "Dave in Hackensack" as he calls himself.


Wednesday, May 13, 2009

Richard Li rebuked

On the "Asian values" front ....

Richard Li was rebuked by a court in Hong Kong last month, in a decision only made public this weekm for jiggering the voting rules in his favor at PCCW, the telecomm company once known as Pacific Century Cyberworks.

Li isn't satisfied with being the largest stockholder at PCCW. He wants, in conjunction with China Unicom, to buy out the others and take it private. He pushed the deal through a shareholder meetingm but then Hong Kong's Securities and Futures Commission stepped in, alleging unfair treatment of the minority shareholders.

It is intriguing that Li's partner in this, and PCCW's second-largest shareholder, is China Unicom. It implies that the HK regulators were standing up both to Li (the scion of a powerful family -- according to Forbes, Li's father is the world's 16th wealthiest man) and to Beijing -- a gutsy move. The lower court upheld Li's tactics as legal, but the SFC appeals.

At any rate, the Court of Appeals ruled on the case last month, and its decision is a pat on the back for the SFC, a sharp rebuke for Li. (Li has an option of appealing further, and is said to be considering it.)

You can read more about the case here.

And you can read about an earlier episode in the history of Richard Li and Pacific Century Cyberworks in my other blog.

Tuesday, May 12, 2009

Three brief items

We're in the thick of proxy fight season. We'll do our best to keep up.

1. One of the founders of Amylin Pharmaceuticals, Howard Greene Jr, has said recently that he will vote for the dissident slate at that company's annual shareholder's meeting May 27.

"There needs to be a fresh wind blowing through the boardroom,” Greene told an interviewer. "I think our science and technology is first in class. . . . On the other hand, the last few years have shown that our commercialization of that has been pretty disappointing.”

The dissident slate is a combination of Icahn and Eastbourne nominees, and the combination itself was made possible by an SEC no-action letter.

2. SEC proceeds against David E. Hurley

Hurley, an investment adviser, has settled a case brought against him by the SEC, which charged him with violating SEC rules pertaining to proxy voting by failing to describe his investment company's proxy voting policies and procedures to its clients properly.

Hurley was the chief operating officer of Intech, a firm that it appears routinely voted its proxies in accord with AFL-CIO recommendations, in the hope of getting a high ranking in that organization's "Key Votes Survey," which in turn was expected to help Hurley/intech attract new union-affiliated clients and keep its existing clients of that sort happy.

But, says the SEC, Intech's "written policies and procedures did not addresss material potential conflicts that may have arisen between Intech's interests and those of its clients who were not pro-AFL-CIO."

3. A closed-end real estate fund -- meeting May 20.

RiskMetrics Group has recommended against the liquidation proposal that will be up for debate at the special meeting of shareholders in DWS RREEF Real Estate Fund Inc. on May 20.

Here's a press release on the subject.

DWS is a closed-end real estate fund. What, you might ask, does that mean? A closed-end fund generally does not continuously offer its shares for sale and its shares are not redeemable, except perhaps at stated internals. As a consequence, the value of these shares on the secondary market can often trade at a discount on the funds' net asset value. When that discount becomes large, pressure to iquidate often develops, which is what is happening here.

The May 20 meeting may tell us something about the extent of push-back we're goiing to be seeing at what I take it is the bottom of a business cycle: push-back against such liquidation proposals.

Monday, May 11, 2009

Ackman and Target

William Ackman, the principal of Pershing Square, is hosting what he calls a "town meeting" today, to introduce his nominees for the board of big-box retailer Target.

Isn't that a wonderful name for such an anouncement? Reminds me of a Norman Rockwell painting. In fact, I think I'll post a photo of the relevant painting here. I gather that is supposed to be some ordinary townfolk telling his neighbors what he thinks about putting a stoplight in at State & Main.

Anyway, Ackman's nominees are as follows: himself, Michael Ashner, James Donald, Ronald Gilson, and Richard Vague. If they are successful, they will replace the following incumbents: Mary Dillon, Richard N. Kovacecich, George W. Tamke, and Solomon D. Trujillo.

Why is a slate with five names contesting a slate with four names? Apparently there is a dispute over the size of the board. Ackman believes the board ought to have 13 seats rather than 12, and that 5 of those 13 ought to be up for decision at the forthcoming annial meeting. The company holds ithas a 12 member classified board, with just the four seats at issue this year.

Target Corporation's retail segment includes general merchandise and food discount stores and, a fully integrated on-line business. In addition, the company operates a credit card segment that offers both store-brand credit cards and VISAs. The company, which operates 1,699 stores in 49 states (which state is excluded? -- I can't tell you) has sufered a severe stock price decline of late, which has ticked off Mr. Ackman, who seems to have bought in at the peak.

The Financial Times quotes Ackman thus: "This is not a poorly managed company. this is really just about improving the board."

It seems sensible to presume that dysfunctions at the board will also show up in the management. If they don't, how dysfunctional can they be? This one confuses me a bit.

I appreciate the excuse to steal the Rockwell image, though.

Sunday, May 10, 2009

Short-selling Roundtable

The SEC held another one of its "roundtables" last week.

This one, on Tuesday, May 5, concerned short sales and the best way to check a bear raid. The SEC under its new leadership seems to have made up its mind that one of two checks ought to be in place -- either a trae-by-trade uptick rule or a day by day circuit breaker rule. Maybe both. It appears that the roundtable was convened to assist it in making up its mind among those alternatives.

The circuit breaker proposal would mean, specifically, that if a particular stock declined by more than 10% in a given day, something would happen to staunch the bleeding. Under the most restrictive of the three variants of the circuit-breaker proposal, such a decline would simply result in an end to the trading in that stock for the remainder thereof.

One of the panelists was James Angel, an associate professor at the McDonough School of Business at Georgetown University, and the co-author (with Douglas McCabe, of "The Business Ethocs of Selling Short and of Naked Short Selling," which you can find here.

Wednesday, May 6, 2009

Lions Gate Entertainment

Back in November, I reported that Carl Icahn was "hovering over" Lion's Gate Entertainment, the film and television studio behind "Mad Men" and "Weeds."

A lot has happened since then. In March, Icahn announced an offer for the company notes, willing to pay $0.75 on the dollar for them. Why would anybody take $0.75 on $1.00 face value? If you think there is a one-quarter chance of a default, that's a fair trade. If you think the chance of default is higher than that, you might jump at Icahn's offer.

But why would Icahn offer 75 cents if he things the chance of default is high? Presumably, he sees the stockpiling of notes as a means whereby he can acquire control over Lions Gate, and he believes that if he does get control, he prospect of default will recede and he'll be able to get a dollar for the dollar.

Anyway: Icahn appears not to have gotten the sort of response he presumably desired from that offer. Bloomberg News has quoted a lawyer of his saying "there wasn't much" response. Bloomberg's story also tells us: "Lions Gate reached an agreement last month with two unidentified bondholders to swap $66.6 million of the 3.63 percent notes for new bonds that can be converted into more common shares. In return, one agreed not to tender $24 million face amount of 2024 debt to Icahn."

So, Carl: If you want control of Lions gate, why not get it the old fashioned way? Make a bid for their equity!

Tuesday, May 5, 2009

Chinalco boss gives an interview

The Financial Times yesterday ran an interview with Wang Wenfu, president of Chinalco Overseas Holdings, with regard to the Rio Tinto deal.

Chinalco is a state-owned Chinese mining concern, and in February it struck a "strategic partnership" deal with the Melbourne-Australia based mining Rio Tinto Group.

As part of that deal, Chinalco is paying Rio Tinto US$7.2 billion for convertible bonds. If Chinalco were then to convert those bonds into equity, its equity share of the Rio Tinto Group would double, from the present 9% to 18%.

Many shareholders are ticked off, because of the obvious dilution effect such newly-created equity will have upon the value of their own shares.

Their concern has been sharpened by the recent increase in the value of their (and Chinalco's) shares. The shares (which are denominated in pounds and traded on the LSE) become convertible -- or, the first $3.1 billion tranche becomes convertible -- if the price gets to 30 pounds. That seemed somewhat theoretical in February, but the price is now at 28.50 pounds, so the threshold is within striking distance.

So what did Wang Wenfu have to say? Two things:

1) "This investment is a package. It is a result of two months of very intensive negotiations. It cannot be viewed separately."

2) "We respect the rights of shareholders. Shareholders should have the right to help their company and Rio management has to assess the situation and it is their judgment that this transaction is in the best interest of all shareholders."

It does not sound like he plans to do any re-negotiating. In still blunter western-world language, "A deal's a deal, suckahs."

Monday, May 4, 2009

Bye, Portfolio

I was never one of the biggest fans of Conde Nast's Portfolio. I can't give them a hearty three cheers even on the occasion of their demise.

Indeed, for my former employer, HedgeWorld, I wrote a critique of the first issue of this mgazine, under the headline, "Where's the Bonfire? Whose Vanity?"

That first issue featured a story by Tom Wolfe, looking at hedge fund managers in Greenwich and Manhattan. This was non-fictioned leavened by novelistic technique, akin to the style Wolfe employed in "The Right Stuff." Frankly, though, Wolfe's story about hedgers stunk and I'm happy to note that I said so at the time.

Still, Portfolio did host some valuable work in the issues thereafter. I appreciated, for example, Jesse Eisinger's story in the March 2009 issue, "The Private Equity Meltdown Myth."

And in general the website of the magazine hosted a slew of bright bloggers who regularly outshown the deadtree operation. They aren't going anywhere. They each have other homes and will keep us informed, though we will have to do a bit more surfing now, and wear out our typing or clicking fingers a bit more, to keep track of them all.

It is sunset time for Portfolio, so it is time to think good thoughts and wish them well. Don't drink and drive though, guys, okay?

Sunday, May 3, 2009

The Ken Lewis earthquake

It is very rare to see the stockholders of a corporation the size of Bank of America despose the chairman of the board thereof, in the way that they deposed Ken Lewis on Wednesday.

Lewis gets to keep his other post, as the company's chief executive. And for that matter he gets to keep a seat on the board, though it will now be chaired by Walter E. Massey.

But the damage that an earthquake does, it does not do all at once. Sometimes an earthquake makes such severe cracks in a building that it will fall, or it will have to be demolished, in the coming days or weeks. And the shareholders meeting may well have undermined Lewis' ability to stay on with any credibility or leadership ability.

Last year, Wachovia's chairman/CEO, Ken Thompson, lost both of those posts, and the bank over which Thompson onbce presided has since been sold to Wells Fargo.

One source of the anger at Lewis at the Bank of America meeting was B of A's recent purchase of Merrill Lynch, a purchase engineered by the US government, and widely seen as a bottom-line mess for the acquirer. But Merrill Lynch was one of those "too big to fail" entities that the government decided to fold into another -- and B of A got the nod.

One shareholder at the meeting, Judith Koenick, addressed Leiws, "I find it incredible you didn't have the guts to stand up to the government."

That's the kind of talk I like to hear. The heads of private companies should catch more flack from shareholder ranks for failing to stand up to public-sector pressures. We need these counter-vailing pressures.