Texas Industries and others

1. What happened with Texas Industries?

Texas Industries (TXI) the supplier of cement and other building materials (not to be confused with Texas Instruments) held its annual meeting of shareholders Thursday October 22d.

Yesterday, the Inspectors of Election certified the results. [Wait for it. Isn't this moment exciting? I feel like I'm ripping open an envelope for you.]

The results represent a sweeping victory for the dissidents, led by Shamrock. Their three nominees were elected to the board, and their resolutions passed. The three new directors are: Marjorie L. Bowen, Dennis A. Johnson and Gary L. Pechota. The resolutions involved: the declassification of the board of directors; the submission of the company's poison pill plan to a vote of shareholders next year.

2. Evidentiary Ruling from the trial of Matthew Tannin

Meanwhile, the trial of Ralph Cioffi and Matthew Tannin on securities fraud charges moves ahead in the US federal court for the eastern district of New York.

It intrigues me that Judge Frederick Block has ruled that the jury cannot see a personal email Tannin wrote in 2006 expressing anxieties about work and the state of the market. Tannin had written an email to himself, in which he said, quote "we could blow up". I haven't had the chance to do more than scan Block's ruling, which is 21 pages long, but it seems to have focused on the scope of the warrant that was used to seize these e-mails, which "did not, on its face, limit the items to be seized from Tannin's personal email acount to emails containing evidence of the crimes charged in the indictment, or, indeed, any crime at all. It was, therefore, unconstitutionally broad ...."

3. Carl Icahn Quits the Yahoo board.

Icahn has left the Yahoo! board of directors. He first assumed his post there back when he was pressing then-CEO Jerry Yang to accept a takeover bid from Microsoft. That didn't happen, and meantime Icahn's attention has wandered to the CIT matter.

On CIT: Icahn has announced a 30 day tender offer for small CIT bondholders' securities at 60 cents on the dollar. Here's what Bloomberg has to say.

Can I find some connection between any one of these points and the year 1987? What was Icahn doing in '87? I'd like to use that year as a post label again.

What's Going On At Legg Mason

There it was on the front page of yesterday's Wall Street Journal, a story with the following lede: "Nelson Peltz, an activist investor in businesses ranging from diamong rings to hamburgers, is set to grab a seat on the board of Legg Mason Inc. after quietly accumulating a significant stake in one of the nation's biggest mutual fund families."

There's a lot going on in that sentence! Let's break it down piece by piece.

1. Who is Nelson Peltz? He is the principal of Trian Fund Management, and in that capacity we have met him in this blog before. The cute reference to diamond rings derives from Peltz's interest in Tiffany & Co. The last time I checked, Peltz/Trian controled slightly less than 7% of Tiffany's stock. And the hamburgers? Wendy's.

2. Legg Mason, the mutual fund family: where does it stand?

Well, it has had a tough couple of years. Its Western Asset Management fixed-income business, in particular, was clobbered as it unwound its position in short-term debt issued by structured investment vehicles (SIVs). The SIVs involved had issued this debt in order to raise money to buy into the sky-rocketing value of real estate not long ago. As the SIVs took a bath on that plan last year, the debt held by Western Asset Management sudedenly looked over-valued. As a result, it sold $1.4 billion of these notes early this year, taking its loss. Separately, Legg Mason also sold $0.4 billion of notes that had been supported through a total return swap with a major bank (no, I don't know which).

3. Did Peltz really "grab a seat"?

It hadn't happened yet when the WSJ went to press yetserday morning, so with appropriate caution the paper didn't say he "has received a seat," but that he was "set to" receive one -- or "grab one," in a nicely vivid turn of phrase. What was "set to" happen did in fact happen, I can now report.

4. How big a "significant stake"?

Trian holds about 6.9 million shares of Legg Mason's common stock, or about 4.3%.

The Wall Street Journal's story tries to hard to try to turn this into a landmark event. Peter Lattman gets the byline, and he writes in his fifth paragraph, "In previous years, companies would have paid little heed to activist investors. But since the middle of this decade, there's been a broader philosophical shift, giving big outside shareholders more influence in running companies."

Well ... no. Philosophy hasn't "given" Peltz more of a stake. A lot has been going on, in various cross-currents, and I've tried to make some sense out of it in this blog, but I can't really buy into Lattman's phrasing.

Anyway, but for that one lame 'graph, it is a fine story.

Europe's Draft Directive: Dead as Written

Most of Europe now seems to understand that the Draft Directive on Alternative Investment Fund managers issued back in April needs more work.

I'll just do some quick link farming on the subject today. I covered the basics in July.

Paul Myners, the UK Financial Services Secretary to the Treasury, discussed some of the troubles with the plan here.

More recently, the International Swaps and Derivatives Association (ISDA) explained some of these problems in a Comment dated October 21, and available through its website.

And perhaps a bit less predictably, the European Central Bank has joined the chorus.

And here, finally, is a summary of Sweden's position in an issues note set out in September.

Renewed Argentinian Excitement

A little more than a month ago (on September 21), the Wall Street Journal reported that there was a deal in the works in which Argentina would re-open a debt exchange deal that the country had closed in 2005.

Among public-finance wonks this caused a flurry of excitement. But then various parties noticed that the markets weren't reflecting any such optimism, and talk waned. See this blog's contribution to that discussion, two days after the WSJ report here.

The excitement was a tad premature, but the WSJ did not have the story wrong. On Thursday, Oct. 22, Argentine Economy Minister Amado Boudou announced a debt swap plan. The plan will seem quite niggardly to those who have held on to the old 2001 instruments all thse years -- more so even than the deal they rejected in 2005. Still, it is important, because it requires the country to change its laws, amendingt he official position that the 2005 offer was the last ever offer.

A law enacted in 2005 in the wake of that earlier swap prohibited the country from ever offering a new swap to investors who had refused that one. The executive branch has asked Congress to repeal that law.

What does all this mean? Those of us who don't have a vested interest in the 2001 instruments are of course free to look at it all dispassionately. What it means is that Argentina has ridden a commodity price bull market since 2005. It didn't need to worry about the fact that its credit in the international markets was lousy -- it had stuff to sell the rest of the world wanted to buy. Now, times are tight, and the Argentines want access to international credit once again, so they have to do something conciliatory.

Three brief items

1. Trident Microsystems

Trident, based in Santa Clara, Calif., is a designer and marketer of integrated circuits and associated software. It recently concluded a deal with a Dutch company, NXP Semiconductors, buying NXP's television systems and set-top box business lines.

Pursuant to this deal, NXP is receiving "newly issued shares of Trident common stock equal to 60% of the total shares outstanding post-closing, including approximately 6.7 million shares that NXP will purchase at a price of $4.50 per share, resulting in cash proceeds to Trident of $30 million."

The deal resolves a proxy contest that had been brewing. The disaffected stockholders, led by Spencer Capital Management LLC, had been complaining of Trident's poor performance. Now they seem to concede that Trident is trying a new direction, and they are giving that new tack a chance, withdrawing their intent to nominate a slare of directors.

"They also serve who only stand and threaten."

2. Prepackaged bankruptcy for CIT.

CIT, the bank holding company (NYSE: CIT) the survived a near-death experience in July, has seen its stock price return to ... a little above a dollar.

It continues to work to reduce its $30bn debt load by at least $5.7bn through a debt exchange, and is also soliciting votes for a pre-packaged Chapter 11 bankruptcy filing, which it will use if too few bondholders agree to the debt exchange.

Now Carl Icahn has stepped in, contending that the company's plans are unfair to bondholders, and he has a better idea. It isn't yet clear (to me at any rate) just what his angle on this is. I'm guessing he isn't helping those bondholders out of a charitable impulse.

3. Cerberus consolidates the gun and ammo industry

Cerberus, the hedge fund and private equity fund group that took something of a beating in the automotive industry, is now working on a new business plan.

The Wall Street Journal reports that Cerberus has been in the market for small guns-and-ammo operations see here. It has bought seven of them over three years, and now it has consolidated them into one, and plans to take that one public.

In the first half of 2008, Cerberus owned gun operations lost $6.1 million. In the first half of this year, they made $23 million. That sounds like a nice turnaround.

Texas Industries Meeting, this Thursday

Texas Industries Inc., (NYSE: TXI) headquartered in Dallas, is a company that produces cement and other construction materials -- not be be confused, BTW, with Texas Instruments.

TXI's annual meeting takes place this Thursday, and its board faces a challenge from Shamrock Capital Advisors. I understand that settlement talks have not gone well.

Shamrock has charged that "the Company's performance lags its peers, hundreds of millions of dollars of the Company's funds have been 'invested' in ill-timed capital expansion projects that have failed to generate any incremental profits, and there appears to be no credible plan to address these shortcomings."

The expansion projects at issue consist of: $427 million on the Oro Grande project (2005-2008); $294 million on the Hunter expansion (2007-2009); and $55 million of capitalized interest (2005-2009).

Of course there hasn't been a lot of large-scale construction requiring cement over the last year or so. The price of cement, for the good old supply/demand reason, has plummeted, which helps explain the difficulties encountered by expansion plans developed before the downturn.

The principal of Shamrock Investment fund, by the way, is Roy Disney -- Walt's nephew. Now if someone were only building a new theme park, THAT would generate demand for cement!

Marc Dreier

For those of you who may have forgotten, Marc Dreier was the big finance-world criminal who made headlines just before Bernie Madoff. Madoff's scheme was so large that it drove everything else of that genre out of the minds of the personally unaffected, but the Dreier case has its own charm.

There is, of course a wiki article if you'd like a more detailed refresher course.

Very briefly, though, Dreier was a lawyer who duped a lot of hedge funds into buying forged notes, many of them supposedly issued by Solow Realty, a corporate vehicle of a real-enough client of Dreier's, developer Sheldon Solow.

But he also forged notes supposedly issued by the Ontario Teachers' Pension Plan. This turned out to be a bit of overreaching. People who moved in Solow's circles knew Dreier and vice versa, and they could take it on faith Dreier was speaking for Solow as to the notes. But the OTPP? The would-be note buyers wanted re-assurance. And so it was that it was at OTPP headquarters in Toronto that the scheme reached its bizaare denoument on Tuesday, December 2.

This comes to mind because Bryan Burrough has a fine article on the Dreier case in the November issue of VANITY FAIR. what I especially like about the Burrough story is his discussion of the long and tangled Solow/Dreier relationship.

Dreier was often Solow's pitbull. When Solow pointed out a target, Dreier's fangs could sink truly and deeply. There was for example a tussle with Peter Morton of the Hard Rock Cafe chain, in which a judge dismissed the third Drier/Solow lawsuit on point, saying Solow has "had so many bites at the apple, [he] has swallowed the core."

And there was a dispute between Solow and another Manhattan developer, Peter Kalikow. The Solow/Dreier campaign of vindictiveness at Kalikow's expense led to some positively sputtering language by Judge Burton Lifland, who described Dreier's actions as "tacky, shabby, base, low, malicious, petty, nasty, unsavory" and other like descriptors.

That's laying it out for us, your honor.

Firms and Transactions Costs

Last week, I wrote a few inadequate words about one of this year's Nobel laureates in economics, Elinor Ostrom.

Today, I will say a few about the other winner, Oliver Williamson. His work, as it turns out, cuts close to the core subject of this blog, the struggle for power in the corporate suites.

Williamson throughout his career has concerned himself with what is called the "theory of the firm." Crudely put, this is an effort to answer the question: why are some activities undertaken within a firm, and others are contracted for outside of its boundaries, in the market?

Suppose some firm (a corporation in the business of manufacturing widgts) owns the office building where it is headquartered. It could contract with another firm for janitorial services, or it could hire its own on-payroll janitors. In the one case, the maintenance functions of that building would be a market transaction, in the other case they would be a matter decisions made by the in-firm hierarchy. Obviously some firms do the one and other firms do the other. What determines which is which?

Williamson picked up on earlier work answering this sort of question by Ronald Coase (who received the Nobel himself in 1991). The Coase-Williamson answer is that there are costs as well as benefits in contracting a function out. There is the cost of searching among the possible providers, and checking among the competing maintenance servicers to see who has the better price, who has the fewer customer complaints and so forth. All of that requires time and expense. There are also costs asociated with striking a bargain with the outsiders, and costs associated with policing and enforcing compliance with the deal struck.

On the other hand, taking janitors onto the payroll, and creating an inhouse maintenance department for them, has costs, too. Just for example: there are various legal distinctions between "big business" and "small business" designed to favor the latter, and many of those distinctions turn on the number of employees. So creating such a department may push a firm past one or more thresholds whereby it will be treated more rigorously by the law of its jurisdiction as a "big business."

Separately, though, there is possibility that the in-house operation will be lazier than an outsourcing company. For that matter, so might a formally outsourced maintenance company with a sufficiently secure long-term contract. In either case, they won't be as "hungry" in a competitive sense as the widget making corporation might want them to be.

Williamson's point was the apparently simple one that both hierarchical and contractual means of solving a particular problem have costs, and that the relative size of those costs will differ from case to case. Businesses will tend to the approach that economizes on their costs. Or, as the press release put out by the Prize Committee says, Williamson say markets and firms as "represent[ing]. alternative governance structures which differ in their approaches to resolving conflicts of interest."

That is simple enough to say, but more complicated to work out in in sufficiently impressive detail to make a scholarly impression. Williamson did so, and contributed to the development of scholarly rigor in discussions of a range of issues in corporate governance.

Cioffi and Tannin on trial

The trial of Cioffi and Tannin on charges of securities fraud, while managing hedge funds operated under the brand of the late Bear Stearns broker-dealer, has begun.

As I have indicated before in this blog, I believe that this prosecution is misguided and hope for a defense victory. But the usual conflict is playing itself out here. I believe I owe this considerable attention, but I just do not have the time to pay it that attention right now. What to do? When all else fails ... link farm.

Here's an account that appeared in the New York Times more than a year ago, of the prominent role e-mails play in the prosecution's case.

The wonderful blog "Houston's Clear Thinkers" was on the case in those days (though its presiding genius, Tom Kirkendall, seems to have been distracted since): here's what you can find there.

For more recent news, here is a discussion of a crucial evidentiary hearing.

Bess Levin has used the case as a vehicle for some humor at the expense of the defendants' former bosses, Cayne and Schwartz at Dealbreaker.

And then there is jury selection, which hasn't gone all that smoothly.

And let us not forget the Wall Street Law Blog.

Gee, I hope some of these guys link to this blog some day. Is that so much to ask?

The Economics Prize Went to ...

Sunday, when I took a stab at predicting that the Swedish central bank would do, I distinguished two different sorts of recent award recipient -- those who may not have any economic background, but whose work drew economic applications from game theory considerations, and those who certainly had an economic background, and whose work fits within the traditional, autonomous, body of economic theory.

Monday, the prize committee gave its award to two people -- one of each of those two descriptions.

Today I'll say something about one of them, leaving the other for next week (and leaving the latest developments in the Bear Stearns trial until tomorrow).

Let's begin with the phrase "the tragedy of the commons," which was coined by Garrett Hardin, in a seminal article in 1968. This is a variant of the game theory conception of the "prisoner's dilemma (PD)" As you may know, the point of the PD is that decisions rational for each of the prisoners taken separately will lead to a sub-optimal result for both of them. In Hardin's variation, there are no human interrogators getting between the "prisoners," so the focus not on who outsmarts whom, but on how humans use their natural resources.

Hardin asked his readers to think of a common patch of land in the middle of an agrarian village, in which custom provides that any village member can let his cattle graze on that land.

The tragedy is that actions that are individually rational will prove collectively disastrous. Each herdsman will fatten up his own cows as much as possible, increasing their value as beef. All the benefit of that over-grazing goes into his own pocket, whereas he only bears a fraction of the risk from it -- the risk of overgrazing.

Wars or disease may delay a day of reckoning over time -- even for centuries. But when there is a social equilibriumn for long enough to allow full sway to the profit maximizing choice, then the commons will be over-grazed, and will become useless.

Hardin's parable has been invoked by two different sets of people -- regulators and libertarians. The former say, "This shows why we have to regulate the use of common property, such as the atmosphere or water rights, to avoid the equivalent of over-grazing." The latter say, "The best choice is generally to privatize the commons -- each rancer will worry about the long-time future of his own plot when it really is his own," though in the case of the atmosphere, applying that insight requires some ingenuity.

Hardin's parable continues both to fascinate and to depress. For one wants to believe that a smal group, a village or a co-op, not necessarily organized on hierarchical lines, and not necessarily reliant on a charter from Delaware, could manage to maintain a commons over a long period of time. Are we so pathetic as a species we can't manage that?

This brings us to the work of Elinor Ostrom, one of the two new economics laureates. She is not trained in economics, but in political science, and she approached the problem of the tragedy of the commons with the instincts of a historian. Thus, she came to write Governing the Commons: The Evolution of Institutions for Collective Action (1990).

She has asked in effect: have there in fact been communities that have handled their common property well over a long period of time? and, if so, what can we say about how they have done this? She applied the old rule: whatever is actual, is possible. Various sorts of commons' -- forests and fisheries, for example -- have proven susceptible to community use without over-use along the lines Hardin's model predicts.

I don't think she gets us to a "comedy of the commons," but her work does help to mitigate the sense of tragedy.

Eastbourne sells stake in Amylin

Eastbourne Capital, one of the shareholders who waged a proxy contest over Amylin Pharmaceuticals earlier this year, has sold its entire stake in that company, according to an SEC filing.

There are twelve seats on the Amylin board. Five of them were up for grabs at the meeting in May. The dissidents won two of those five.

Amylin, a San Diego based pharma company (NASDAQ:AMLN), focuses on drugs for the treatment of diabetes and obesity.

Dissidents have expressed frustration with some of the deals Amylin's management has cut, especially a partnership with giant Eli Lilly.

The stock price was between $11 and $11.50 at the time of that annual meeting. It rose in subsequent weeks, getting as far as $15.50 in early August, though the price has lost some of those gains since. Even with the recent slide, the stock price has considerably outperformed the Nasdaq-100 index in recent months.

This news made me curious about the size of the market for diabetes treatments. A little googling discovered the abstract of a book on the subject, INNOVATIONS IN THE MANAGEMENT OF DIABETES published last year.

The abstract begins: "Diabetes has become the fifth leading cause of death across developed markets, and cases of the disease are forecast to grow by 7.1% across the globe by 2013. The market for innovative diabetes treatments will be driven by this projected rise in prevalence, together with the substantial unmet need for drugs that can effectively halt or reverse disease progression. Although extended lifecycle management for existing antidiabetic therapies may offer sales growth in the short term, the development of new drugs from novel classes will become increasingly important in the future."

A Game Theorist is Due?

The official Nobel Prizes have all been bestowed. What remains is the unofficial Nobel.

What is loosely termed the Nobel Prize in Economics is actually the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. It was not one of the prizes for which the old dynamiter provided in his will, althouh it has successfully ridden along on their coattails and established for itself an analogous eminence.

Regardless: tomorrow we will know the name of this year's winner(s) of this final 'Nobel.'

If we list the winners of the last five years, we can see that the committee has oscillated back and forth between general game-theoretic approaches to social science (inclusive of course of economics) on the one hand, and hardcore economics as an autonomous field on the other. This oscillation goes back to the Nash/Selten/Harsanyi award of 1995, immortalized by Hollywood but we'll stick to the more recent swerves.

2004 Finn E. Kydland and Edward C. Prescott. Kydland teaches at the University of California, Santa Barbara, Prescott at Arizona State. They won for work on the business cycle.

2005 Robert J. Aumann and Thomas C. Schelling. Aumann is at Hebrew University of Jerusalem, in Israel. Schelling is retired, but is most closely associated with Harvard University. They won for game theory. This prize was interpreted by some as evidence the economics Award was morphing into a more general social-sciences award.

2006 Edmund S. Phelps. This was more hadcore economics, though. Phelps won for work on "intertemporal tradeoffs in macroeconomic policy." Specifically, he postulated a "natural rate of unemployment." The simple but depressing idea that government policies designed to push unemployment below this rate will have adverse consequences later sounds a little better if it is called an intertemporal trade-off, doesn't it?

2007 Leonid Hurwicz, Eric S. Maskin, Roger B. Myerson. Hurwicz is affiliated with the University of Minesota; Maskin with Princeton; Myerson with the University of Chicago. This was again an award for game theory, although the prize committee referred to it as "mechanism design theory."

2008 Paul Krugman. Economics in a strict sense again.

So I'm thinking 2009 will be a year for social science and game theory once again.

Taibbi out on a lonely limb

This summer, Matt Taibbi gained notoriety by a journalistic hatchet job on Goldman Sachs for Rolling Stone, made immortal by the "vampire squid" passage:

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

More recently, Taibbi has joined the anti-nakedness crusade. That is, he is now among those who believe that "naked short sales" are a critical problem for the US markets and for the U.S. economy. I have spoken about such views in this blog and elsewhere, and to be concise about it here: I don't share them.

Anyway, Taibbi now does. And pursuant to this new conviction he has posted on his blog a video that he says shows the process in action.

Has the rest of the anti-nakedness crusade hailed this new high-profile recruit? or for that matter this video evidence? No. For the most part they've been silent. Maybe that is wise. Kid Dynamite gives a convincing explanation of what is actually going on in that video, and it isn't what Taibbi thinks. It's just an audit trail entry. If it is anything. There is also a school of thought that suggests it is a fake, and Taibbi is the dupe of some scammer.

Penson, the financial services company who allegedly okayed a "locate" of a massive number of shares without proper basis (i.e. green-lighted an illegal naked short sale) has itself taken the initiative by going to the SEC. Shouldn't Taibbi have done that, given his belief that he has uncovered blatant market manipulation?

It was Penson who went to the SEC to inform the agency of "an apparent hoax and unsupported accusation."

We'll see how it pans out. But it seems to me that it is Taibbi who is way out on a limb here. And I hear wood cracking.

OTC derivatives bill

On Friday, Rep. Barney Frank (D-MA), the chairman of the Financial Services Committee of the House of Representatives, released a "discussion draft" of legislation to regulate over-the-counter derivatives.

This draft takes a point of view distinct in an important respect from that of the administration. The White House/Treasury proposals have focused on standardizing OTC derivatives so that they could be processed through clearing houses, in the expectation that such clearing would lower the risk of such instruments to the broader financial system.

Look at this from the point of view not of hedge funds or speculators, but of companies who really use derivatives to hedge their operational positions. Airline companies, for example, are in the market for derivative products in regard to oil prices. Why? because sharp increases in oil prices proves very costly to their operations, so they look for a way to make such a sharp increase work for them through the derivative, getting them back in one pocket what that development takes away from them via the other.

Yet airlines might have a tougher time doing this under the Obama proposal than they'd like, because the centralized clearinghouses could require they put up cash or liquid assets as collateral. That would burn a hole in their balance sheets.

The discussion draft says that the requirement for OTC swaps to be cleared centrally would not apply if "one of the counterparties to the swap is not a swap dealer or other major swaps participant." Learn more here.

See the discussion draft itself here.

Larry Summers

Ryan Lizza has written a lenghty story on Larry Summers, one of the key economic-policy figures of this administration, for vanity Fair. It is available online here. Warning, it is rather long.

You can get the gist of it from the lucky fish.

Lizza confronted Summers with a tidbit from Rubin's memoir (written back in 2002). Summers was Rubin's second-in-command at the Treasury Department under Clinton.

Rubin wrote:

"Larry thought I was overly concerned with the risks of derivatives. His argument was characteristic of many students of markets, who argue that derivatives serve an important purpose in allocating risk by letting each person take as much of whatever kind of risk he wants. Larry’s position held together under normal circumstances but seemed to me not to take into account what might happen under extraordinary circumstances.”

MRV Comm Update

MRV Communications, the California based networking-ethernet company that recently endured an SEC stock-options examination unscathed, will hold its annual shareholder meeting on Veterans' Day, November 11, at the Warner Center Marriott in Woodland Hills, Cal.

The record date is September 28. [That is: if you were a shareholder of record as of that date, you'll have a vote.]

the company's nominees for the nine-member board are: Noam Lotan, Shlomo Margalit, Baruch Fischer, Harold Furchtgott-Roth, Joan Herman, Guenter Jaensch, Michael Keane, Igal Shidlovsky and Daniel Tsui. The company proxy materials say that seven of those nominees would count as independent directors as defined in the rules of the Nasdaq Stock Market. The two non-independent nominees are the CEO and the incumbent chairman, Noam Lotan and Shlomo Margalit, respectively.

In addition to being the chairman, Margalit is described as "Chief Technology Officer and Secretary."

I've written a bit about MRV in this blog recently: here and here.

What I should add is that the opposition to the above slate seems to be led by the Spencer Capital fund group. One of their complaints with regard to the alleged mismanagement of the company goes back to the Fiberxon acquisition more than two years ago.

In the original merger agreement, MRV and Fiberxon agreed that the closing of the merger would be conditional upon the delivery to MRV of Fiberxon's audited consolidated financial statements. But on June 26 of the same year, MRV agreed to an amendment to the merger agreement that dropped that requirement.

Spencer Capital charges that the board thereby demonstrated its lack of regard for the shareholders of the company, and its incompetence.