Tuesday, June 30, 2009

The New York Times

Bradley Johnson and Nat Ives have made the case,in ADVERTISING AGE, that the New York Times Co. will still be in business, and the Sulzbergers will still be in control there, through at least 2012.

One fact this story provides of which I was not aware -- Arthur Sulzberger's son, A.G. Sulzberger, is now a reporter at the metro desk. Presumably "learning the ropes" as heir to the throne, which is what is father was doing when his grandfather was in charged. Johnson and Ives think the Kingdom will still be intact for AG to inherit.

This is less gloomy (unless you are routing for their failure, in which case it is more gloomy) than many other assessments. Indeed, Johnson & Ives begin their story by mentioning a recent claim in The Atlantic that the publishing company could go under by or during the month of May 2009. That month, of course, has come and gone -- and so now has its successor.

The gist of it seems to be the Regional Newspaper Group that the comapny owns. Many of the papers in that group still have double-digit profit margins. Although the NYT Co. has a cash crunch coming n 2011, when it have to repay its borrowings against a revolving credit facility, it could if necessary sell those valuable assets to raise that cash and keep the core of its business, the flagship paper, intact for AG.

For those of you who enjoy the sound of the crunching of numbers, here's the link.

Monday, June 29, 2009

Trico Marine, Outcome

The shareholders of Trico Marine elected the two contested incumbent nominees at the 2009 Annual Meeting, Joseph S. Compofelice and Ben A. Guill.

The Trico Marine Group, which is headquartered in The Woodlands, Texas, provides subsea, trenching, and marine support vessels and services.

This is a defeat for the two Kistefos nominees, Christen Sveaas and Age Korsvold. A proposal to expand the size of the board was also defeated.

But all was not lost for admirers of insurgency. A proposal to declassify the board of directors prevailed.

The company's announcement is here.

One of the unusual features of this particular proxy fight was the involvement of the Jones Act, otherwise known as the Merchant Marine Act of 1920. This is a bill that provides for workers compensation payments to seamen, and that offers various sorts of protectionism to US maritime related industry. For example, the Jones Act prevents US shipholders from refurbishing their ships in foreign ports.

Trico made a point that the Jones distinguishes between US companies and non-US companies, beneficiaries of its protection provisions and non-beneficiaries, based on the control of a company even by indirect means. It said that a May 29th letter the company had received from the US Maritime Administration said that Trico's protected status might be at risk should certain Kistefos-sponsored outcomes ocur at the meeting. I'll try not to get into the technicalities of it, which are intricate.

The bottom line, after all, is that the issue turned out to be a red herring, though, as on June 5 the same agency sent a follow-up letter. "In light of our review of Delaware case law and the affidavit of Messrs Korsvold and Sveaas, we find that concern regarding use of Independent Proxies has been assuaged."

Still, maybe that isn't quite the bottom line. For who knows but that the momentunm of a proxy contest, always an uphill matter, was broken during that period between the 29th and the 5th, when this seemed to be an issue?

Sunday, June 28, 2009

Troubles at TCI

The Children's Investment Fund Management LLP, a high-profile hedge fund which we have encountered before in this blog, is apparently discussing with investors the possibility of offeringt hem more attractive terms, and even returning to them some cash, given their unhappiness over its recent poor performance.

We've encountered TCI fairly often in the brief history of this blog. Its proxy fight to get candidates on the board of CSX led to some intellectually fascinating litigation.

And its adventures in Japan led to a head-on clash with that country's government.

But investors don't care about ntellectual challenge or the sense of multi-national adventure. They're in it, believe it or not, for the money. And since TCI has not been generating a lot of they, they have to mollify.

Since it is Sunday, and I have to go work on my yard, I'll just send you over to Bloomberg for more.

Wednesday, June 24, 2009

SCOTUS Weighs in on Bankruptcy Law, II

Continuing yesterday's discussion of TRAVELERS INDEMNITY CO v. BAILEY (June 18, 2009).

Stevens wrote the dissenting opinion, for himself and Ginsburg.

"Because the 1986 injunction has never meant what the Court today assumes, respondents' challenge is not an impermissible collateral attack. The Court of Appeals correctly concluded that the Bankruptcy Court's 2004 order improperly enjoined the state-law claims at issue in this proceeding."

He cited a 1995 decision, CELOTEX v. EDWARDS, 514 US 300 (1995) for the proposition that "bankruptcy courts have no jurisdiction over proceedings that have ne effect on the debtor." My attention was piqued by that, because Stevens was actually citing to a footnote in the CELOTEX decision -- n. 6. CELOTEX too was a case in which the high court struggled with the jurisdictional language of the bankruptcy statutes. District courts are said to refer "any and all proceedings arising under title 11 or arising in or related to a case under title 11 ... to the bankruptcy judges for the district." How much is encompassed in that "related to"?

So, the bottom line here, the dissenters notwithstanding, is that (a) a bankruptcy court -- and a crucial one, that in the Southern District of New York -- has taken a very wide view of what is related to its proceedings, and that (b) the very wide view has survived challenge, even if on principles of res judicata rather than on any affirmation of its rightness.

This may, in a Machiavellian sense, be a necessary decision given the severity of asbestos liabilities outstanding and the systemic threat they may pose given the present economic climate. Still, hard cases make bad law, and I have to report a visceral reaction to the cutting off of Bailey's claims.

As the dissent pointed out, Bailey couldn't have objected and appealed the 1986 order because nothing in that order on its face spoke to her. Bailey appealed as soon as the order was "clarified" into a bar onher ability to litigate her claim -- if this was collateral, the fault for that was hardly hers.

Tuesday, June 23, 2009

SCOTUS Weighs in on Bankruptcy Law, I

The Supreme Court of the United States (SCOTUS) issued what may prove a very important opinion on the law of corporate bankruptcy on Thursday, June 18, Traveler's Indemnity v. Bailey.

In 1982, Johns-Manville Corp., a manufacturer of asbestos-containing poduct, under the pressure of its civil liabilities, filed for protection from its creditors.

Four years later, the bankruptcy court for the Southern District, New York, approved its reorganization plan. A crucial part of the plan was the creationof the Manville Personal Injury Settlement Trust.

The petitioner in the action before SCOTUS is Travelers Indemnity, because under that 1986 plan, Travelers was required to contribute to this asbestos tort claim kitty, in return for a release from any policy claims under the Manville insurance policies. The Trust has since paid out more than $3.2 billion to over 600,000 claimants.

The fly in the ointment, though, was that years later Travelers became the target of direct actions brought in state courts. There are two sorts of action relevant to this decision. Some have been brought under state consumer-protection statutes alleging that Travelers conspired with other insurers and with its manufacturer clients to hide the dangers of asbestos and raise a fraudulenbt state-of-the-art defense at the expense of plaintiffs. Other actions are based on common law principles, and allege that Travelers had a duty to warn the public about the dangers of asbestos, a duty it breached. Note that both sorts of case assert that Travelers violated duties independent of its contracts with Mansville.

In 2002, the bankruptcy court, in Travelers' motion, issued a temporary restraining order against the pursuit of such lawsuits, and encouraged mediation (while it repeatedly extended that TRO).

The parties reached a settlement. Travelers made payments, contingent upon a court order clarifying that under the 1986 Orders it did not have to -- that such direct actions are barred because Travelers involvement in the asbestos industry was exclusively derived from its relationship with Manville.

The bankruptcy court obliged. In August 2004 it issued a clarifying order regarding the 1986 reorganization plan, blocking "the commencement or prosecution of all actions and proceedings against Travelers that directly or indirectly are based upon, arise out of or relate to Travelers' insurance relationship with Manville or alleged knowledge concerning asbestos," since, the court said, everything Travelers knows about asbestos, it learned from Manville and that relationship.

The respondents in the case before SCOTUS, including the first-named, Pearlie Bailey (for the Estate of James Bailey) are asbestos claimants who then asked the US District Court in Manhattan to find that the bankruptcy court did not have jurisdiction over claims not affecting the estate of the bankrupt. The district court refused, and they appealed to the second circuit.

Bailey at al prevailed in the Second Circuit in an opinion by Judge Wesley that said: "While there is no doubt that the bankruptcy court had jurisdiction to clarify its prior orders, that clarification cannot be used as a predicate to enjoin claims over which it had no jurisdiction. Thus, the bedrock jurisprudential issue in this case requires a determination as to whether the bankruptcy court had jurisdiction over the disputed statutory and common law claims." Accordingly, it vacated the ruling of the district court and remanded for a determiantion of which state plaintiffs' claims implicate the debtor in the underlying bankruptcy action and which do not.

Travelers appealed, and won. Souter wrote for the court in a 7 to 2 vote. SCOTUS has not addressed the issue of the limits of the bankruptcy court's jurisdiction squarely. Instead, it rather ducked that issue, saying that plaintiffs should have challenged the Mansville ruling in 1986 in a direct manner, rather than in a collateral action almost a quarter-century later. "To the extent respondents argue that the 1986 Orders should not be enforced according to their terms because of a jurisprudential flaw in 1986, this argument is an impermissible collateral attack."

There is all the usual language here about the practical necessities served by the principle of res judicata.

I realize that I've gone on a bit longer than I expected to in summarizing the facts, procedural posture, etc. I'll say something about why and how this decision may prove important in tomorrow's post.

Monday, June 22, 2009

Short selling and Knight Capital

Back in April, the SEC asked for comment on certain rule changes designed to make short sales more difficult, such as an uptick rule.

I'll proceed on the hypothesis that readers of this blog know what short selling is, and know what the uptick rule used to be.

I return to the subject, discussed here before, because Knight Capital has this week (June 18) submitted its own comment, signed by Leonard Amoruso, and it is quite discerning.

Amoruso writes that in Knight's view no change in Reg SHO is necessarily warranted, but that if the SEC must enact some change, "the approach which may have the least negative impact on liquidity and price discovery is the circuit breaker approach with the Modified uptick (bid test) -- with the appropriate exceptions, including for bona fide market making."

Knight Capital is a services firm that provides electronic access to the global capital markets. As such, it has an obvious interest in the liquidity of those markets, and it is aware of the role short selling plays in providing that liquidity.

Sunday, June 21, 2009

NRG Energy

NRG Energy is holding its annual shareholders meeting a month from now -- July 21.

Four directors' seats are at issue. What is more, the continued independent existence of the company is at issue: Exelon has a buy-out offer on the table.

A Houston based energy research firm, Tudor Pickering Holt, has supported the NRG management's desire to retain its independence, or at least to hold out for a higher price. Tudor agrees with them that the offer undervalues the target.

Chris Morrison, of BNET Energy, reminds us all that "the world is full of procrastinators," and that the reason Exelon's offer has not yet found more takers than it has may simply because that there is a good deal of time left in which they may do so. "There are good reasons to wait until an offer is about to expire before taking it up."

NRG has been quite busy in recent weeks, since this offer has been on the table, entering into partnerships, making deals, and generally showing the investors what they can do.

Wednesday, June 17, 2009

Three brief items

1. Ackman on the board of GGP

It is good to hear that Bill Ackman, the principal of Pershing Square, has not been thrown into any funk by his recent defeat in the Target proxy fight.

On Monday, June 8 he became a member of the board of directors of General Growth Properties, another of Pershing Square's portfolio companies. He controls 7.5% of GGP's equity.

GGP is in bankruptcy, and Pershing Square sought last month to become its debtor in possession lender. That didn't work out, because GGP got slightly better termns from a group including Farallon, Elliott Associates and others.

For a skeptical view of a recent Ackman presentation on GGP, go here.

2. Providence Claims Victory over Avalon

The Providence Service Corporation announced Monday that, based on a preliminary vote count provided by its proxy solicitor, its stockholders have overwhelmingly re-elected Providence's two director nominees, Fletcher Jay McCusker and Kristi L. Meints.

The challengers, nominated by the Avalon Group received support from less than 2% of the shares held by non-affiliates of the Avalon Group and voted in the election of directors.

"We appreciate the strong support of our stockholders and look forward to moving beyond the Avalon Group's disruptive and distracting proxy contest and their self-interested agenda and returning our full attention to delivering on Providence's very significant potential and enhancing value for ALL Providence stockholders," said Fletcher Jay McCusker, Providence's chief executive.

3. Reform of Financial Regulatory System

This afternoon, POTUS will formally unveil the administration's new plan for regulation of financial services.

One of the key points is that the Federal Reserve will get greater control over institutions thought to pose "systemic risk" to the system. Also, the FDIC will gain new authority to seize and liquidate troubled institutions.

But some of the reforms that seem to many of us the obvious moves, like consolidating the CFTC with the SEC, aren't in the program at all.

Tuesday, June 16, 2009

More on Pennant and PHH

In its last proxy statement prior to the stockholder's meeting, Pennant had to warn investors not to "read too much into today's stock price."

PHH stock had been rallying, and of course Pennat was concerned that the rally could work to the advantage of the incumbent board in the eyes of shareholders. So Pennant wrote, "The stock still trades below its price one year ago. We seriously question whether the run-up is attributable to the leadership, performance, and credibility of the incumbent Board. Rather, we think there are much better expanations, such as the industry-wide refinancing boom that has emerged from massive government intrervention in the financial markets."

Hmmmm. This kind of reasoning could confirm a cynic. "I try to be cynical, but I can't keep up," as Lily Tomlin said.

When the stock price goes down, it proves that there is rot at the top, and new board members are necessary.

When the stock price goes up, it is irrelevant to the question of the leadership of the board, because there are always broader economic factors involved.

Of course, if you're writing a proxy contest letter for the incumbents, both of those arguments are reversible.

A heck of a lot of what looks like reasoning in the public world -- political, financial, etc. -- is simply an effort to put something together that LOOKS like reasoning.

And about that "refinancing boom," I suppose this is a good time to add my own voice to that of some other observers that the so-called "boom" is a trap for the unwary. We as a nation are in the position of a drunk who solves his hangover by drinking "a hair of the dog." What we need is something more akin to some aspirin and a 12 step program.

Monday, June 15, 2009

PHH Will Need a New Chairman

Pennant Capital Management LLC has won a proxy contest over representation on the board of PHH Corp., a company with what would seem two very different types of operation: its a vehicle fleet management company as well as an originator of residential mortgages.

The contest came to a head Wednesday, at PHH's annual shareholder meeting.

PHH and Pennant jointly announced the results Friday. There were only three seats up for a vote, given the classified nature of the board, and Pennant only contested two of those three. So it now has two seats witin a seven seat board.

At first blush, one might not see that as too dramatic a turnover. But the two board members it displaces are: A.B. Krongard, the Chairman, and Terence W. Edwards, the CEO.

The loss of his board seat won't affect Edwards' position as CEO. The loss of a board seat on the other hand, does mean that Krongard can't continue as chairman, so someone new will have to be chosen.

Congratulations to the new board members, Allan Loren and Greg Parseghian. Loren is a former chairman of Dun & Bradstreet. Parseghian is former chief investment officer of Freddie Mac.

Sunday, June 14, 2009

An Industry that Dodges Bullets

Entering the year of our Lord 2009, many participants in the hedge fund and alternative-investment industry in were of the opinion that the industry was on the eve of a radical transformation, at worst, effective elimination, due to government actions in a variety of jurisdictions that might result from the ongoing credit/financial crisis.

Yet it now appears that the industry may survive that impulse. I’m impressed by what hasn’t happened – by how any bullets it has dodged of late. Six come to mind at once.

1. The Insurance Department in New York appears to have lost interest in a plan, mooted last year, to regulate CDS’ as insurance.

2. The Governor of New York backed away early this year away from a plan to tax carried interest as ordinary income in that state's income tax

3.. The composition of the EU Parliament has changed in a way that will create difficulties for the implementation of new regulations of hedge fund managers there

4. Three efforts to regulate hedge funds failed in the General Assembly of Connecticut this year: although one of them had passed the state senate, they’ve all died with the end of session

5. In the US federal government, the new administration has dropped plans to radically rework the chart of its financial regulatory agencies

6. And the ban on short selling of a range of finance industry firms announce last fall was allowed to expire, and there seems no impetus to renew it.

Wednesday, June 10, 2009

Three brief items

1. Tang Capital v. Penwest

Tang Capital and Perceptive Life Sciences are waging a proxy contest vis-a-vis Penwest Pharmaceuticals Co. (NASDAQ: PPCO), asking shareholders to vote for a resolution "requesting that the Board promptly take all necessary action to wind down substantially all of the Company’s operations so that the full value of
the Opana ER royalty income stream will be retained for the benefit of shareholders."

Opana ER is a pain treatment licensed in the US since June 2006 and marketed under the name Endo. The dissidents apparently think that the rest of the company is a drag upon that one valuable asset. The matter will be resolved at the annual meeting today.

As it happens, just yesterday PenWest licensed Endo to Valeant Phamaceuticals, for 10-20% of the net sales in Australia, Canada, and New Zealand.

Penwest's management is predictably resisting the call for dissolution.

2. Keweenaw Land Association Ltd.

Keweenaw is asking its shgareholders to vote for the company slate against dissident board candidates Ronald S. Gutstein and Scott Frisoli at their annual shareholder meeting, scheduled for June 23. This meeting is to take place in Ironwood, Michigan.

(I love Ironwood as a place name: a compound of two solid Anglo-Saxon nouns. But let's stay focused.)

Gutstein and Frisoli will bring little to the board, the company says, because, "Though undoubtedly possessing skills in the securities industry, they lack executive level experience in an industrial company and industry-specific experience in timberlands and minerals management, a fact acknowledged by RiskMetrics in its 2008 report.

"Neither individual has visited the Company, toured the Company's timberland holdings, or had in-depth on-site discussions with senior managers."

3. Chrysler-Fiat obstruction removed

I had hopes, briefly, that we were about to see a classic instance of judicial defiance of the executive. But it was not to be.

Ruth Bader Ginsburg had up the Chrysler-Fiat deal for about 24 hours.

Not exactly like the Steel-nationalization case from the Truman era, was it?


Tuesday, June 9, 2009

Surprise from the Supreme Court

Judge Ginsburg yesterday issued a one-sentence order staying the sale of most of the assets of Chrysler to Fiat pending further order.

This surprised me. Fiat is entitled to walk away from the deal if it does not close by June 15, and I was under the impression that the federal courts in general would fade in the face of such a ticking clock, regardless of the merits of such contentions as might be brought to their attention by objecting parties.

The Obama administration wants this deal. Their solicitor general, Elena Kagan, had argued that blocking the sale would force Chrysler's liquidation. That seems to me the sort of ham-fisted our-way-or-the-highway argument that Truman's lawyers once used to try to justify the seizure of the steel mills.

At least part of my startled reaction to this decision is delight that we are seeing another such moment, of a Supreme Court willing to stand up to the Executive on a matter of principle. What is the principle?

The objecting parties are three Indiana pension funds, who object that the sales agreement everyone wants to push through rewards unsecured creditors ahead of secured creditors and that this is illegal. It also objects to the fact that the US Treasury is using bailout money for Chrysler as part of an effort to make the deal happen -- the bailout funds were authorized by Congress in order to keep the banking system going.

Monday, June 8, 2009

Investment Advisory Committee

The SEC has released the names of the members of its new Investment Advisory Committee.

Mark Anson, President and Executive Director of Investment Services, Nuveen Investments

Jeff Brown, Senior Vice President, Legislative and Regulatory Affairs, Charles Schwab & Co., Inc.

Mercer Bullard, Founder and President of Fund Democracy, Inc. and Associate Professor of Law, University of Mississippi Law School

Stephen Davis, Senior Fellow and Project Director, Yale University School for Management's Millstein Center for Corporate Governance, and nonexecutive chair of Hermes Equity Ownership Service

Abe Friedman, Global Head of Corporate Governance and Proxy Voting and Managing Director, Barclays Global Investors

Mellody Hobson, President of Ariel Capital Management

Dennis A. Johnson, Managing Director, Shamrock Capital Advisors, Inc.

Adam Kanzer, Managing Director and General Counsel, Domini Social Investments LLC

Mark Latham, Director of Proxy Democracy, a nonprofit organization helping individual investors

Barbara Roper, Director of Investor Protection, Consumer Federation of America

Dallas Salisbury, President and CEO, Employee Benefit Research Institute

Kurt Schacht, Managing Director, CFA Institute

Damon Silvers, Associate General Counsel, AFL-CIO

Kurt Stocker, Chairman of the Individual Investors Advisory Board of the NYSE

Sunday, June 7, 2009

negative interest rate

Willem Butler makes an intriguing point in his May 20th blog entry.

His point concerns the sharia prohibition on interest rates, which has become a fashionable subject in some circles where "Islamic finance" is touted as superior o the now-discredited "western finance."

Question: if real interest rates fall into negative territory, are they still prohibited?

Wednesday, June 3, 2009

Trico Marine Services

The 2009 Annual Meeting of Trico Marine Services' shareholders is scheduled for Wednesday, June 10.

Trico set itself up for a challenge last month (May 11) when it announced a plan to trade 6.5% convertible debentures for 8.125% convertible debentures, cash, and common stock or warrants.

The largest shareholder, Kistefos, strenuously objected to the plan, which dilutes iots own holdings and those of other pre-plan shareholders and benefits the bondholders, Kistefos' statement at that time said:

"While we are still studying the details of this transaction, it appears that in an effort to remedy the adverse consequences of its over-priced and over-levered acquisitions in 2007 and 2008, the company not only has accepted an increased coupon and a significantly reduced conversion price on the new debentures while securing the debt holders, but has also chosen to substantially dilute its existing stockholders in the process when other, more affordable and less dilutive options could have been pursued."

You can see from the chart above that on the day of that announcement, the price of Trico stock fell from above $5.25 to $4.25. Since then, it has continued to decline, and at the close of the day yesterday, Tuesday, a share was worth $3.17. This has happened while broad indices have been headed upward.

Some sort of stockholder rebellion is due, surely.

Tuesday, June 2, 2009

Modern Settings v. Prudential

This case is still valid as precedent though it has been 18 years.

Not only still valid, I was at a conference this morning at which a lawyer active in securities practice treated this as still the leading case on the validity of a "ratification" defense in a dispute over unauthorized trading.

I find it fascinating that this hasn't been superceded, since it seems to me the underlying question must arise all the time.

Many clauses between an investor and an asset manager will provide that if the asset managher makes an arguably unauthorized trade, the investor must make his displeasure known within a specified number of days and in writing in order to preserve a cause of action. If he does not, then his silence is held to have "ratified" the trade.

This rule has some prima facie validity. It limits "buyers remorse," where an investor is willing to accept the upside of a manager's decisions on his behalf but wants to dispute any decisions that turn out to have a downside. On the other hand ... well, it raises the old "agency problem" in sharp form.

Anyway, Modern Settings remains the modern setting. And the neat thing is: one of the defendant entities went by the name: Bialystock & Bloom.

Monday, June 1, 2009

Target meeting

Target's annual shareholder meeting took place in one of the chain's retail outlets, in Waukesha, Wisconsin.

Target claims that its incumbent directors have been re-elected by a comfortable margin. The four incumbents whose positions were contested are: Mary N. Dillon, Richard M. Kovacevich, George W. Tamke, and Solomon D. Trujillo.

In a statement, Target's chairman, Gregg (Three-Gs) Steinhafel said: “Today’s outcome demonstrates the confidence Target shareholders have in our Board’s qualifications, diversity and experience to provide effective and independent oversight and direction to the company, contributing to the creation of one of the most recognized brands in the United States. We remain dedicated to serving the interests of all shareholders by sustaining Target’s competitive advantage, driving continued profitable growth and generating substantial shareholder value over time.”

As to the meeting itself, Joe Nocera provides an entertaining account in Friday's New York Times. Ackman spoke on his own behalf at the meeting, and Nocera reports that Ackman seems to have known he was going to lose. It was a concession speech, aimed at persuading himself and whoever might be open to persuasion that he had been fighting the good fight.

"This is a great day for Target and for shareholders generally,” he said because the fight had been waged. He and his allies had done it because “we never want Target to be referred to as a ‘once-great company.’ ” Yet to show there is no animosity, he referred to the directors he had been seeking to replace as "stellar."

Whatever disappointment he may feel has failed to slow him down. He has a new cause, the bankrupt mall operator General Growth Properties. Of that, more another day.