Today's the day of the Gyrodyne annual meeting. Phil Goldstein and his "Bulldog" hedge fund are seeking to put Mr. Goldstein and an ally on the Gyrodyne board.
They have at least two leading complaints about management, which they hope they'll be able to address when on the board. First, that Gyrodyne (a manager of commercial real-estate) has a claim against the state of New York in regard to an eminent domain issue but hasn't avidly pursued the matter. Second, that Gyrodyne's board has entrenched itself at the expense of shareholder value with a "poison pill" by-law, and the new board members, if Bulldog is successful, will work for its revocation.
If you've been following my earlier posts carefully, though, you may be surprised that I've just spoken of Mr. Goldstein and "an ally" rather than "two allies." Originally, he was part of a three man slate Bulldog nominated for the board, along with Timothy Brog and and Andrew Dakos. But on Monday, Gyrodyne filed amended proxy materials with the SEC that indicate that its settled its difficulties with Timothy Brog, formerly the third man on the Goldstein slate.
"Mr. Brog has also withdrawn his consent to serve as a director if elected and the Company has dismissed its claim against Mr. Brog in the matter titled Gyrodyne Company of America, Inc. v. Full Value Partners L.P., et. al, No. 07-CV-4859. The Company and Mr. Brog have also agreed to mutual releases for claims arising out of the 2006 and 2007 Annual Meetings," the company says.
Who is Tim Brog anyway? When I first encountered that name in the Bulldog/Gyrodyne context, it had a familiar ring to it, but I didn't have the chance to run that down.
Brog has proxy-slate experience. In August 2006 he was elected to the board of directors of bubble-gum marketer Topps as part of a negotiated agreement that resolved a proxy contest there. As a youth, back when I had dentition, I chewed many a stick of bazooka joe bubble gum, so it's unsurprising that his name had stuck (like cognitive gum) to my mind.
That said, I contacted Mr. Brog this morning. He tells me that the Gyrodyne filing is accurate. Also, he said that this doesn't represent any split in views between himself and Bulldog. One of the proxy-advisory services apparently has recommended that shareholders in Gyrodyne note for two out of the three members of the dissident slate. To avoid any scattering of the votes in response to that suggestion, Messrs Goldstein and Brog agreed that Mr. Brog would withdraw his name from consideration.
So things go in the fast-moving world of proxy contests. Ain't this great (though somewhat nerdy) fun?
Wednesday, December 5, 2007
Tuesday, December 4, 2007
BHP/ Rio Tinto
The BHP/Rio Tinto saga is complicated but important. Its important because it involves nothing less than control of a large chunk of the worlds active mines excavating iron ore, copper, coal, and a variety of other minerals.
Its complicated because the word "control" in the above sentence has both a corporate and a national significance, and because the laws of several different nations will play a part in helping determine this.
A little less than a month ago, on November 8, BHP Billiton announced a bid for control of Rio Tinto. In a sense there would be four companies involved in any such acquisition because both Rio and BHP have a dual identity: each is both a British and an Australian corporation -- with separate sets of shareholders but with only one board of directors and managerial structure.
BHP is the larger of the two, but Rio has the more illustrious history. It began with Spanish mines so old the ancient Roman empire had minted coins from the metal taken from that earth. In 1873, two Rothschild firms -- the Parisian and the London -- joined with other investors to buy the Spanish government's interest in these mines. They restructured the company and turned it into a profitable business run from London.
The dual national nature of the company came about in the 1960s, when BHP bought a majority stake in the Aussie firm Consolidated Zinc.
But, to the point: the board of directors of Rio has resisted BHP's offer, claiming that it significantly undervalues the company.
It is often the case that when the directors of a target company resist such an overture, they realize and accept the fact that they are "in play," they their days as an autonomous operation are nearing an end, but their looking for a "white knight," a friendlier company willing to make a higher bid for the damsel.
The government of China, and corporations it sponsors, may be about to put on the white shining armor in this scenario. China Investment Corp. has US$200 billion at its disposal. Yet so large is the scale of Rio's assets and prospects that there is also talk that by the time the auction is over, that might not be enough.
There's much more that might be said about this matter, but I've just offered you a score card -- or at least sketched the outlines of the score card -- for what may be a long game. We'll see how it fills in.
Its complicated because the word "control" in the above sentence has both a corporate and a national significance, and because the laws of several different nations will play a part in helping determine this.
A little less than a month ago, on November 8, BHP Billiton announced a bid for control of Rio Tinto. In a sense there would be four companies involved in any such acquisition because both Rio and BHP have a dual identity: each is both a British and an Australian corporation -- with separate sets of shareholders but with only one board of directors and managerial structure.
BHP is the larger of the two, but Rio has the more illustrious history. It began with Spanish mines so old the ancient Roman empire had minted coins from the metal taken from that earth. In 1873, two Rothschild firms -- the Parisian and the London -- joined with other investors to buy the Spanish government's interest in these mines. They restructured the company and turned it into a profitable business run from London.
The dual national nature of the company came about in the 1960s, when BHP bought a majority stake in the Aussie firm Consolidated Zinc.
But, to the point: the board of directors of Rio has resisted BHP's offer, claiming that it significantly undervalues the company.
It is often the case that when the directors of a target company resist such an overture, they realize and accept the fact that they are "in play," they their days as an autonomous operation are nearing an end, but their looking for a "white knight," a friendlier company willing to make a higher bid for the damsel.
The government of China, and corporations it sponsors, may be about to put on the white shining armor in this scenario. China Investment Corp. has US$200 billion at its disposal. Yet so large is the scale of Rio's assets and prospects that there is also talk that by the time the auction is over, that might not be enough.
There's much more that might be said about this matter, but I've just offered you a score card -- or at least sketched the outlines of the score card -- for what may be a long game. We'll see how it fills in.
Monday, December 3, 2007
What's a Poison Pill?
The term is employed so often in debates over corporate governance that we ought to be outfront here about just what it means.
A "poison pill" is a plan that increases the value of what existing shareholders are holding, when a potential acquirer accumulates more than a set amount of the equity.
Typically, such a by-law will provide that if one investor acquires more than, say, 10% of the company's equity, each of the other non-acquiring shareholders acquire the right to buy new stock at bargain prices. This dilutes the potential acquirer's holding, and requires that the acquirer pay more than it otherwise would in order to gain control of its target.
Company managements typically call them "shareholder rights plan," because that sounds better. Their effect upon most of the shareholders accorded these rights is probably negative, because if they deter potential acquirers from actually making such a move and passing the threshold they by definition lower the market demand for the stock.
Here's the URL for academic discussion of some of the issues that these provisions raise under Delaware law: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=659322
Sometimes the term "poison pill" is used more broadly for a range of anti-takeover measures. But I'll try to keep to the narrow, and thus the usefully specific, meaning of the term in my postings here. (Other measures with similar goals have equally colorful nicknames, like "shark repellent.")
A "poison pill" is a plan that increases the value of what existing shareholders are holding, when a potential acquirer accumulates more than a set amount of the equity.
Typically, such a by-law will provide that if one investor acquires more than, say, 10% of the company's equity, each of the other non-acquiring shareholders acquire the right to buy new stock at bargain prices. This dilutes the potential acquirer's holding, and requires that the acquirer pay more than it otherwise would in order to gain control of its target.
Company managements typically call them "shareholder rights plan," because that sounds better. Their effect upon most of the shareholders accorded these rights is probably negative, because if they deter potential acquirers from actually making such a move and passing the threshold they by definition lower the market demand for the stock.
Here's the URL for academic discussion of some of the issues that these provisions raise under Delaware law: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=659322
Sometimes the term "poison pill" is used more broadly for a range of anti-takeover measures. But I'll try to keep to the narrow, and thus the usefully specific, meaning of the term in my postings here. (Other measures with similar goals have equally colorful nicknames, like "shark repellent.")
Sunday, December 2, 2007
Three brief items
1. Motorola, a Fortune 100 communications company, announced that Ed Zander is stepping down as its CEO.
Zander will remain as chairman of the board until May, when the company holds its annual meeting. Carl Icahn has said for at least a year now that Zander wasn't right for the CEO job. He put out a statement Friday crowing a bit. Zander's departure is "long past due" etc.
But Zander himself was never the focus of Icahn's efforts at Motorola. He believes the best way to increase the value of the stock for shareholders like himself is to split it up -- make it a company focused tightly on mobile devices and spin off everything else.
My guess at the moment is that the new CEO, Greg Brown, won't be on board with Icahn's agenda any more than Zander was.
2. Readers may recall that here on November 20 I blogged about proxy access rules under consideration by the SEC.
Since then, the agency has made its choice. Its adopted the most restriuctive of the rules under consideration. In other words, it holds that company's can simply exclude from the ballot any shareholder attempt to re-write the company's ruiles concerning elections to the board of directors.
In general, this is bad news, not just for the Carl Icahns of the world but for corporate productivity in the US. This ruling will encourage incumbemnt managemnents to entrench themselves and resist pressures from outside. Entrenchment, as a rule, is a bad thing. Shake-ups are ghood things. Capitalism requires that the pot be kept boiling.
Creative destructive works like that. Protect yourself from the latter, you minimize the former.
3. More about Gyrodyne and Goldstein. As I mentioned Wednesday, Gyrodyne brought a lawsuit in federal court asking for an injunction so that Goldstein couldn't ruin their party this week. Their annual meeting is Wednesday and they don't want him soliciting proxies to replace three of them on the board with himself and two associates.
It's an 8-member board, so even complete success in terms of his slate won't give Goldstein a majority. But his slate would need only 1 convert to produce a tie vote, and deadlock, on a given issue.
At any rate, it appears that the district court refused to grant the injunction, so the solicitations continue.
The big issue? Poison pills. I'll discuss such "pills" in general in tomorrow's entry.
Zander will remain as chairman of the board until May, when the company holds its annual meeting. Carl Icahn has said for at least a year now that Zander wasn't right for the CEO job. He put out a statement Friday crowing a bit. Zander's departure is "long past due" etc.
But Zander himself was never the focus of Icahn's efforts at Motorola. He believes the best way to increase the value of the stock for shareholders like himself is to split it up -- make it a company focused tightly on mobile devices and spin off everything else.
My guess at the moment is that the new CEO, Greg Brown, won't be on board with Icahn's agenda any more than Zander was.
2. Readers may recall that here on November 20 I blogged about proxy access rules under consideration by the SEC.
Since then, the agency has made its choice. Its adopted the most restriuctive of the rules under consideration. In other words, it holds that company's can simply exclude from the ballot any shareholder attempt to re-write the company's ruiles concerning elections to the board of directors.
In general, this is bad news, not just for the Carl Icahns of the world but for corporate productivity in the US. This ruling will encourage incumbemnt managemnents to entrench themselves and resist pressures from outside. Entrenchment, as a rule, is a bad thing. Shake-ups are ghood things. Capitalism requires that the pot be kept boiling.
Creative destructive works like that. Protect yourself from the latter, you minimize the former.
3. More about Gyrodyne and Goldstein. As I mentioned Wednesday, Gyrodyne brought a lawsuit in federal court asking for an injunction so that Goldstein couldn't ruin their party this week. Their annual meeting is Wednesday and they don't want him soliciting proxies to replace three of them on the board with himself and two associates.
It's an 8-member board, so even complete success in terms of his slate won't give Goldstein a majority. But his slate would need only 1 convert to produce a tie vote, and deadlock, on a given issue.
At any rate, it appears that the district court refused to grant the injunction, so the solicitations continue.
The big issue? Poison pills. I'll discuss such "pills" in general in tomorrow's entry.
Wednesday, November 28, 2007
What's a Gyrodyne
I recently encountered the name Gyrodyne, as that of the plaintiff in a lawsuit against Phillip Goldstein and Bulldog Investors. My reaction was that same as I imagine yours would be (given my conception of who "you" are -- a digression that you wouldn't want me to enter into either). Who or what is Gyrodyne?
I cared because the name of Phillip Goldstein is very familiar to me. I've covered some of the litigation in which he's been enmeshed. When the SEC sought to require hedge funds to register as investment advisers, most of the hedge fund industry thought this a small matter, a little added paperwork, much easier to comply with than to fight.
Goldstein fought. He contended that the SEC didn't have the statutory authority it claimed, and he pursued that question, successfully, to the US Supreme Court, destroying the registration mandate.
I saw Mr. Goldstein at a convention of activist investors in California last month, and the moderator of one particular panel in which he was a participant introduced him as a "libertarian hero."
When that moderator opened the floor to questions, I spoke very briefy to Phil Goldstein, not about the registration matter but about the idea of "empty votes," the hedging away of the real economic interest of shares to retain only their voting value. Some scholars have thought such a tactic to be a real threat to rational corporate governance, others have thought it a phantom.
That, then, was the gist of my question. I may discuss the "empty votes" controversy here another time. For now, let it stand only as evidence that I have followed Goldstein's career. For that reason, I care when I run across a lawsuit in which he's a defendant.
The plaintiff, again, is Gyrodyne Company. Who's that? Its the owner of some industrial and commercial real estate on Long Island, NY.
Goldstein is apparently waging a proxy fight to take over Gyrodyne's board of directors, on the ground that the company has depressed its own value through a "poison pill" discouraging potential acquirers.
Gyrodyne responded with a lawsuit in Manhattan federal district court last week, saying that Goldstein/Bulldog is using false and misleading proxy materials.
The following is directly from Gyrodyne's press release:
"We filed this suit ... to ensure that our shareholders receive complete and accurate information about the Bulldog group's interests, plans and motivations that is required by the federal securities laws....We will continue to take appropriate steps to protect the interests of Gyrodyne shareholders."
As kids of the playground, watching a fight develop, might say at this point: Ooooooo.
Gyrodyne's annual meeting is a week from today. I hope to come back to this before then.
I cared because the name of Phillip Goldstein is very familiar to me. I've covered some of the litigation in which he's been enmeshed. When the SEC sought to require hedge funds to register as investment advisers, most of the hedge fund industry thought this a small matter, a little added paperwork, much easier to comply with than to fight.
Goldstein fought. He contended that the SEC didn't have the statutory authority it claimed, and he pursued that question, successfully, to the US Supreme Court, destroying the registration mandate.
I saw Mr. Goldstein at a convention of activist investors in California last month, and the moderator of one particular panel in which he was a participant introduced him as a "libertarian hero."
When that moderator opened the floor to questions, I spoke very briefy to Phil Goldstein, not about the registration matter but about the idea of "empty votes," the hedging away of the real economic interest of shares to retain only their voting value. Some scholars have thought such a tactic to be a real threat to rational corporate governance, others have thought it a phantom.
That, then, was the gist of my question. I may discuss the "empty votes" controversy here another time. For now, let it stand only as evidence that I have followed Goldstein's career. For that reason, I care when I run across a lawsuit in which he's a defendant.
The plaintiff, again, is Gyrodyne Company. Who's that? Its the owner of some industrial and commercial real estate on Long Island, NY.
Goldstein is apparently waging a proxy fight to take over Gyrodyne's board of directors, on the ground that the company has depressed its own value through a "poison pill" discouraging potential acquirers.
Gyrodyne responded with a lawsuit in Manhattan federal district court last week, saying that Goldstein/Bulldog is using false and misleading proxy materials.
The following is directly from Gyrodyne's press release:
"We filed this suit ... to ensure that our shareholders receive complete and accurate information about the Bulldog group's interests, plans and motivations that is required by the federal securities laws....We will continue to take appropriate steps to protect the interests of Gyrodyne shareholders."
As kids of the playground, watching a fight develop, might say at this point: Ooooooo.
Gyrodyne's annual meeting is a week from today. I hope to come back to this before then.
Tuesday, November 27, 2007
Harry Potter and the structured investment vehicles
I wrote yesterday about HSBC and a dissident investor, Eric Knight, and promised I'd get back to the subject today. That, as it turns out, was a good bit of timing.
At about the time I was writing that post, HSBC's London office was making an announcement: its going to bail out two of its structured investment vehicles (SIVs). Those of you who don't know the jargon: please don't let those eyes glaze just yet. This is big.
An SIV is sponsored by a larger organization, but its assets and liabilities are kept off the larger institution's balance sheet.
The sponsoring organization isn't required to rescue SIVs. The fact that HSBC has voluntarily done so, and is taking their troubled assets ($45 billion in mortgage-backed securities) onto its own balance sheet means something because it is the first of the world's major banks to do so in the current credit crunch.
HSBC isn't acting altruistically of course. It's protecting its brand name. Outsiders are often confident in investing in, or becoming the counter-party of, an off-balance-sheet vehicle with a big name sponsor, precisely because they feel that the big sponsor won't allow it to default. HSBC wants them to continue to feel that way -- at least, when it's the sponsor. This is worth what may end up being a big hit.
Still, HSBC's brass deserve some credit for corporate statesmanship here. They're the first of the major banks to take this hit. An alternative might have been for their troubled SIVs to liquidate themselves into the market, with an asset fire sale. But that might have triggered imitators, and a rush for the exits.
What happens in a building with narrow doors when everyone tries to exit at once?
This time, the world of finance might not have to find out.
All that said, what were Mr. Knight's contentions about the failings of the bank? His ad in yesterday's WSJ said that HSBC has perennial stock market underperformance compared to its peers. It has pursued geographical diversification instead of comparative advantage, it has never achieved the optimal scale in key markets -- the UK, the USA, and France. According, he thinks, HSBC should play to its strength and its origins. It should move its headquarters away from London, into China. The People's Republic has rules limiting the activities of "foreign" banks and the HSBC could have much more freedom of action in the region it knows best if it ceased to be "foreign" there.
He is also unhappy with the way in which the top execs of HSBC decide upon their compensation. He wants the bank to make public minutes of all meetings in which they discussed their bonuses. So far, they've refused.
As far as I can tell, if they have helped avert the worsening of the credit squeeze by their announcement yesterday, they've earned something of a bonus.
Okay, the "Harry Potter" reference above was a bit misleading. Still, I was going to write "HSBC and the structured investment vehicles" but that just triggered the association to the characteristic Rowling's titles and I couldn't resist.
At about the time I was writing that post, HSBC's London office was making an announcement: its going to bail out two of its structured investment vehicles (SIVs). Those of you who don't know the jargon: please don't let those eyes glaze just yet. This is big.
An SIV is sponsored by a larger organization, but its assets and liabilities are kept off the larger institution's balance sheet.
The sponsoring organization isn't required to rescue SIVs. The fact that HSBC has voluntarily done so, and is taking their troubled assets ($45 billion in mortgage-backed securities) onto its own balance sheet means something because it is the first of the world's major banks to do so in the current credit crunch.
HSBC isn't acting altruistically of course. It's protecting its brand name. Outsiders are often confident in investing in, or becoming the counter-party of, an off-balance-sheet vehicle with a big name sponsor, precisely because they feel that the big sponsor won't allow it to default. HSBC wants them to continue to feel that way -- at least, when it's the sponsor. This is worth what may end up being a big hit.
Still, HSBC's brass deserve some credit for corporate statesmanship here. They're the first of the major banks to take this hit. An alternative might have been for their troubled SIVs to liquidate themselves into the market, with an asset fire sale. But that might have triggered imitators, and a rush for the exits.
What happens in a building with narrow doors when everyone tries to exit at once?
This time, the world of finance might not have to find out.
All that said, what were Mr. Knight's contentions about the failings of the bank? His ad in yesterday's WSJ said that HSBC has perennial stock market underperformance compared to its peers. It has pursued geographical diversification instead of comparative advantage, it has never achieved the optimal scale in key markets -- the UK, the USA, and France. According, he thinks, HSBC should play to its strength and its origins. It should move its headquarters away from London, into China. The People's Republic has rules limiting the activities of "foreign" banks and the HSBC could have much more freedom of action in the region it knows best if it ceased to be "foreign" there.
He is also unhappy with the way in which the top execs of HSBC decide upon their compensation. He wants the bank to make public minutes of all meetings in which they discussed their bonuses. So far, they've refused.
As far as I can tell, if they have helped avert the worsening of the credit squeeze by their announcement yesterday, they've earned something of a bonus.
Okay, the "Harry Potter" reference above was a bit misleading. Still, I was going to write "HSBC and the structured investment vehicles" but that just triggered the association to the characteristic Rowling's titles and I couldn't resist.
Monday, November 26, 2007
HSBC Critic Buys Ad Space
The founder, principal, chief-cook-and-bottle-washer of Knight Vinke Asset Management (KVAM) has renewed his criticism of HSBC. Today's Wall Street Journal contains Eric Knight's indictment of the giant global bank, taking up two thirds of page B6.
HSBC traces its history back to 1865, when a Scot named Thomas Sutherland decided that there was money to be made in providing banking services along China's coast. He set up a bank in Hong Kong in March and another in Shanghai in April -- hence the name, "Hongkong and Shanghai Banking Corporation," which gave rise eventually to the more economical name: HSBC.
Skipping forward a bit ... HSBC shares are traded on four exchanges: Hong Kong, Paris, London and New York. It isn't literally true that trading never stops -- a really persistent trader/specialist might allow himself a bit of sleep after the New York close and before the Hong Kong opening bell. But not much.
Sticking to New York and to US dollar denominations: HSBC's stock was trading in a range between $96 and $98 for much of October. Through November, it has broken decisively out of that range -- downward. The price is now in the mid $80s. This is unsurprising, given the credit turmoil in the US especially. Why shouldn't investors in HSBC simply ride out that turmoil and wait for a rebound? What in particular makes Mr. Knight unhappy with management?
I'll leave that as my cliffhanger. More in tomorrow's entry.
HSBC traces its history back to 1865, when a Scot named Thomas Sutherland decided that there was money to be made in providing banking services along China's coast. He set up a bank in Hong Kong in March and another in Shanghai in April -- hence the name, "Hongkong and Shanghai Banking Corporation," which gave rise eventually to the more economical name: HSBC.
Skipping forward a bit ... HSBC shares are traded on four exchanges: Hong Kong, Paris, London and New York. It isn't literally true that trading never stops -- a really persistent trader/specialist might allow himself a bit of sleep after the New York close and before the Hong Kong opening bell. But not much.
Sticking to New York and to US dollar denominations: HSBC's stock was trading in a range between $96 and $98 for much of October. Through November, it has broken decisively out of that range -- downward. The price is now in the mid $80s. This is unsurprising, given the credit turmoil in the US especially. Why shouldn't investors in HSBC simply ride out that turmoil and wait for a rebound? What in particular makes Mr. Knight unhappy with management?
I'll leave that as my cliffhanger. More in tomorrow's entry.
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