The Woodbridge Group has sent its fellow shareholders in Office Depot (NYSE: ODP) a letter giving their reasons for dissatisfaction with that company's current board of directors and management.
Certainly the one-year stock price chart for ODP helps them make their case. Last April, the price was flirting with $37 a share. That flirtation didn't go well. She kicked him to the curb.
A steady decline began in June, and led to what seemed in September to be a floor of $19. The stock moved up from that floor as far as $22, then fell back again, crashing into the basement. It's now move $11 a share.
This, though, doesn't make a case by itself. These are difficult times. Lots of companies arehaving trouble. So (the Woodbridge Group suggests) let's look at the competition: Staples (NYSE: SPLS).
Back when ODP was flirting with $37, SPLS's dalliance was with the more modest-sounding figure of $26.50.
While ODP has lost more than two-thirds of its value in the meantime, SPLS, which is also down, has lost only 16% of its value, since it is now at $22.40.
This comparison may be unfair. It is always possible in such cases that the stock that underperforms if we're looking at price is also the one that's been spitting out dividends. I haven't checked into that possibility here.
Still, the Woodbridge Group complains that on basic operational metrics, Staples outdoes Office Depot. Same store sales data, for example. Again, as with stock price, both company's have fallen, But the fall is much more dramatic in the one case than in the other. Same stock sales are down for Staples by 5%. They're down for Office Depot by 24%.
The annual meeting is scheduled for April 23, at the Boca Raton Marriot.
I'll look into this particular dispute somewhat further tomorrow.
Monday, March 31, 2008
Sunday, March 30, 2008
KPMG Out As Bear Liquidator
There's a Cayman Islands subplot to the ongoing drama of Bear Stearns.
The Grand Court there recently replaced KPMG Inc. as the liquidator of two now-infamous Bear Stearns hedge funds with lots of nasty subprime exposure.
The two funds have not-so-snappy names. One is the Bear Stearns High-Grade Structured Credit (Overseas) Ltd. The other is the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd.
Mother Bear in New York last summer opted for the voluntary liquidation of these two funds in the Caymans, under whose laws the funds were organized.
Last month, a high muckedy-muck there ordered new liquidators: Geoffrey Varga and William Cleghorn of Kinetic Partners LLP, an international auditing and compliance consultancy founded in the spring of 2005. An auditing-world greybeard is out, a spring chicken is in.
According to an announcement from Kinetic Partners, a majority of investors sought the replacement of the KPMG liquidators.
"Investors also wanted a full and detailed investigation into the causes of the Feeder Funds' downfall to be undertaken, anticipating that the results would likely lead to the prosecution of claims for recovery against any of the Feeder Funds' direct and/or indirect control parties or service providers who appear to have any degree of responsibility for the Funds' losses," according to a statement from Kinetic Partners.
What's this all about? The judge seemed to go out of his way to et KPMG itself off any hypothetical 'hook.' He said (I'm quoting from a newsletter published by KYC News): "No suggestion whatsoever of impropriety or incompetence on the part of the Joint Voluntary Liquidators is intended. On the contrary, all parties have been keen to acknowledge the high reputation of KPMG...."
So KPMG presumably isn't one of those "control parties or service providers" against whom, the investors believe, liability might be found? It appears not.
The judge also seemed to think, though, that some of the lawyers associated with these funds had acted in a suspicious manner, and presumably bringing Kinetic into the picture will jumpstart an investigation of their behavior.
There are a million stories in this dying Bear.
The Grand Court there recently replaced KPMG Inc. as the liquidator of two now-infamous Bear Stearns hedge funds with lots of nasty subprime exposure.
The two funds have not-so-snappy names. One is the Bear Stearns High-Grade Structured Credit (Overseas) Ltd. The other is the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd.
Mother Bear in New York last summer opted for the voluntary liquidation of these two funds in the Caymans, under whose laws the funds were organized.
Last month, a high muckedy-muck there ordered new liquidators: Geoffrey Varga and William Cleghorn of Kinetic Partners LLP, an international auditing and compliance consultancy founded in the spring of 2005. An auditing-world greybeard is out, a spring chicken is in.
According to an announcement from Kinetic Partners, a majority of investors sought the replacement of the KPMG liquidators.
"Investors also wanted a full and detailed investigation into the causes of the Feeder Funds' downfall to be undertaken, anticipating that the results would likely lead to the prosecution of claims for recovery against any of the Feeder Funds' direct and/or indirect control parties or service providers who appear to have any degree of responsibility for the Funds' losses," according to a statement from Kinetic Partners.
What's this all about? The judge seemed to go out of his way to et KPMG itself off any hypothetical 'hook.' He said (I'm quoting from a newsletter published by KYC News): "No suggestion whatsoever of impropriety or incompetence on the part of the Joint Voluntary Liquidators is intended. On the contrary, all parties have been keen to acknowledge the high reputation of KPMG...."
So KPMG presumably isn't one of those "control parties or service providers" against whom, the investors believe, liability might be found? It appears not.
The judge also seemed to think, though, that some of the lawyers associated with these funds had acted in a suspicious manner, and presumably bringing Kinetic into the picture will jumpstart an investigation of their behavior.
There are a million stories in this dying Bear.
Wednesday, March 26, 2008
Springfield and MetroPCS
David Wighton writes "Wall Street Dispatch" for the wonderful peach-colored Financial Times.
His column today carries a fine discussion of the American "addiction" to litigation, as it affects Wall Street right now. In the process, he draws a connection I hadn't thought of before.
"In February," he writes, "Merrill Lynch repaid the City of Springfield, Massachusetts about $13.9 million for collateralized debt obligations it had sold to the municipality with the permission of city officials."
That's true, of course, and I've made a couple of references to that dispute in my other blog, Pragmatism Refreshed.
What I hadn't realized is that the old rule about the need to punish every good deed applies here. Wighton points out that after Merrill Lynch repaid the disputed amount, the Mass secy of state "promptly launched a fraud case against Merrill."
I also wouldn't have thought to make a connection between that fraud case and a civil action brought this week against Merrill Lynch in connection with auction-rate securities. Wighton tells me that cell phone operator MetroPCS has filed a lawsuit claiming that Merrill didn't properly explain the risks, selling auction-rate securities to MetroPCS as "low-risk and highly liquid," in compliance with that company's investment policy.
Why was a cell phone company interested in auction-rate securities at any rate? Wighton doesn't spell it out, but if I understand him accurately this was a way of saving money for its employees' pension plan. I'll have to look into that a bit.
Wighton's over-riding point is that companies (and municipalities) "across the US are considering taking an unusual step to counter disappointing returns from their corporate treasuries: legal action."
We've lost the ability to suck it up and move forward. We always have to sue somebody. We ought to learn the stereotypical stiff-upper lip from Mr. Wighton's fellow countrymen.
He's got a point.
His column today carries a fine discussion of the American "addiction" to litigation, as it affects Wall Street right now. In the process, he draws a connection I hadn't thought of before.
"In February," he writes, "Merrill Lynch repaid the City of Springfield, Massachusetts about $13.9 million for collateralized debt obligations it had sold to the municipality with the permission of city officials."
That's true, of course, and I've made a couple of references to that dispute in my other blog, Pragmatism Refreshed.
What I hadn't realized is that the old rule about the need to punish every good deed applies here. Wighton points out that after Merrill Lynch repaid the disputed amount, the Mass secy of state "promptly launched a fraud case against Merrill."
I also wouldn't have thought to make a connection between that fraud case and a civil action brought this week against Merrill Lynch in connection with auction-rate securities. Wighton tells me that cell phone operator MetroPCS has filed a lawsuit claiming that Merrill didn't properly explain the risks, selling auction-rate securities to MetroPCS as "low-risk and highly liquid," in compliance with that company's investment policy.
Why was a cell phone company interested in auction-rate securities at any rate? Wighton doesn't spell it out, but if I understand him accurately this was a way of saving money for its employees' pension plan. I'll have to look into that a bit.
Wighton's over-riding point is that companies (and municipalities) "across the US are considering taking an unusual step to counter disappointing returns from their corporate treasuries: legal action."
We've lost the ability to suck it up and move forward. We always have to sue somebody. We ought to learn the stereotypical stiff-upper lip from Mr. Wighton's fellow countrymen.
He's got a point.
Tuesday, March 25, 2008
Motorola
Motorola has scheduled its annual meeting for May 5. There might be a lot of fireworks between now and then, because Carl Icahn, no less, wants four seats on their board -- one-third of the total.
Motorola has offered him two seats. Icahn isn't in the mood for compromise and has turned that down.
Aside from the vote on who sits where, the meeting will also include a resolution to recoup unearned management bonuses. This looks like a turn-the-heat-up tactic on Icahn's part. The proposed resolution asks the board to seek to "recoup all unearned incentive bonuses or other incentive payments to all senior
executives to the extent that their corresponding performance targets were later
reasonably determined to have not been achieved or resulted from error(s)."
Icahn has also brought a lawsuit for access to documents. Delaware law requires that a demand for inspection have a specific basis -- the investor making such a demand can't be on a fishing expedition. On the basis that this is exactly what Icahn is doing, Motorola will contest the matter.
The stock price, by the way, has fallen dramatically over the last five months, from above $19 to below $10.
That might lead one to suppose, "gee, they must have lots of dissatisfied investors on their hands, so maybe the ground is fertile for Icahn's challenge."
It ain't necessarily so, though. The investors who are the most disgruntled about Motorola's management are those who would have been most likely to sell already -- to sell out at some point between $19 and $10. So those who still had stock as of the record date earlier this month, almost by definition, are those who believe that the problems are short-term and have some faith in a turnaround.
A real shake-out price drop on this scale, in other words, might be good news for a would-be self-entrenching management.
Actually, I have no idea. I'll know when you folks do.
Motorola has offered him two seats. Icahn isn't in the mood for compromise and has turned that down.
Aside from the vote on who sits where, the meeting will also include a resolution to recoup unearned management bonuses. This looks like a turn-the-heat-up tactic on Icahn's part. The proposed resolution asks the board to seek to "recoup all unearned incentive bonuses or other incentive payments to all senior
executives to the extent that their corresponding performance targets were later
reasonably determined to have not been achieved or resulted from error(s)."
Icahn has also brought a lawsuit for access to documents. Delaware law requires that a demand for inspection have a specific basis -- the investor making such a demand can't be on a fishing expedition. On the basis that this is exactly what Icahn is doing, Motorola will contest the matter.
The stock price, by the way, has fallen dramatically over the last five months, from above $19 to below $10.
That might lead one to suppose, "gee, they must have lots of dissatisfied investors on their hands, so maybe the ground is fertile for Icahn's challenge."
It ain't necessarily so, though. The investors who are the most disgruntled about Motorola's management are those who would have been most likely to sell already -- to sell out at some point between $19 and $10. So those who still had stock as of the record date earlier this month, almost by definition, are those who believe that the problems are short-term and have some faith in a turnaround.
A real shake-out price drop on this scale, in other words, might be good news for a would-be self-entrenching management.
Actually, I have no idea. I'll know when you folks do.
Monday, March 24, 2008
GenCorp settlement
Defense contractor GenCorp now appears to be headed to an uneventful annual meeting this week (Wednesday) after reaching an agreement with Steel Partners, the hedge fund that controls 14% of its equity.
As part of the settlement, GenCorp's president and chief executive, Terry Hall, has stepped down. The interim CEO is J. Scott Neish, and efforts to recruit a permanent replacement for Hall are underway.
Also, three new directors recommended by Steel Partners will take seats on the 8-member board of directors.
The parties apparently reached this agreement on March 5, but didn't announce it until the 17th. In the first two trading days after the announcement, GenCorp's stock price rose markedly. But in the following two days the price slide back to the pre-announcement level. The lesson, I suppose, is that although investors were happy with the resolution, broader market turmoil overwhelmed that narrow-gauge sort of happiness.
As part of the settlement, GenCorp's president and chief executive, Terry Hall, has stepped down. The interim CEO is J. Scott Neish, and efforts to recruit a permanent replacement for Hall are underway.
Also, three new directors recommended by Steel Partners will take seats on the 8-member board of directors.
The parties apparently reached this agreement on March 5, but didn't announce it until the 17th. In the first two trading days after the announcement, GenCorp's stock price rose markedly. But in the following two days the price slide back to the pre-announcement level. The lesson, I suppose, is that although investors were happy with the resolution, broader market turmoil overwhelmed that narrow-gauge sort of happiness.
Sunday, March 23, 2008
Section 6.10
Those wonks who've been following the news about the disintegration of Bear Stearns in recent days will know at once to what the above subject line refers.
Section 6.10 is the "deal protection" clause of the merger agreement between Bear and itsacquirer, JP Morgan.
The agreement as a whole in all its 47 pages of glory is readily available. Here's one of the clicks that will get you there.
6.10 provides that if the shareholders of Bear Stearns vote against this chintzy two-dollar deal, "each of the parties shall in good faith use its reasonable best efforts to negotiate a restructuring of the transaction provided for herein ... and to resubmit the transaction to Company's shareholders for approval, with the timing of such resubmission to be determined at the reasonable request of Parent."
"Company" is Bear and "Parent" is JPMorgan.
What this seems to mean is that the shareholders can't say "no." At least not on the first try. They can at worst say, "maybe not, restructure it a bit and try us again."
But how many times would they have to say that before it amounted to a "no"? This seems a bit like the infamous closed loop on the shampoo bottle's instructions, said to keep many a blonde busy for days. "Apply, lather, rinse, repeat."
The Deleware courts have imposed certain restructions on the enforceability of such "deal protection devices," such that this language may be subject to challenge by those shareholders.
For more on the legal issues involved, you might want to click here.
Section 6.10 is the "deal protection" clause of the merger agreement between Bear and itsacquirer, JP Morgan.
The agreement as a whole in all its 47 pages of glory is readily available. Here's one of the clicks that will get you there.
6.10 provides that if the shareholders of Bear Stearns vote against this chintzy two-dollar deal, "each of the parties shall in good faith use its reasonable best efforts to negotiate a restructuring of the transaction provided for herein ... and to resubmit the transaction to Company's shareholders for approval, with the timing of such resubmission to be determined at the reasonable request of Parent."
"Company" is Bear and "Parent" is JPMorgan.
What this seems to mean is that the shareholders can't say "no." At least not on the first try. They can at worst say, "maybe not, restructure it a bit and try us again."
But how many times would they have to say that before it amounted to a "no"? This seems a bit like the infamous closed loop on the shampoo bottle's instructions, said to keep many a blonde busy for days. "Apply, lather, rinse, repeat."
The Deleware courts have imposed certain restructions on the enforceability of such "deal protection devices," such that this language may be subject to challenge by those shareholders.
For more on the legal issues involved, you might want to click here.
Wednesday, March 19, 2008
Proxy Fight Updates
1. The New York Times has settled its dispute with hedge funds Harbinger and Firebrand.
The Times agreed Monday to expand its board of directors by two seats and appoint to those seats Scott Galloway and James Kohlberg. These are two of the nominees who had been on the dissident slate.
This resolution shows either (a) that even the Times with its dual stock structure isn't immune from outside pressures, or (b) that the Times has cleverly fending off a challenge by giving up seats that will prove meaningless, proving that it remains effectively immune to outside pressure.
Your call.
2. CSX files lawsuit.
As regular readers of Proxy Partisans know, the railroad corporation CSX faces a proxy challenge from the London-based hedge fund TCI which contends that the company should: separate the roles of chairman of the board and chief executive; refresh the Board with new independent directors; allow shareholders to call special shareholder meetings; align management compensation with shareholder interests; justify its capital spending plan to shareholders; and provide to shareholders a plan to improve operations.
On Monday, CSX filed a lawsuit in the federal court in Manhattan, where TCI's US operations are based. The allegations are fairly complicated, but the main point of the lawsuit involves federal laws that require that shareholders who own more than a threshold amount of the equity of a company to disclose this fact as they pass the threshold. The idea is to prevent an ambush -- to bring takeover contests and such out into the open.
CSX claims that TCI has played games to hide how much of CSX it owns, violating the threshold rules in fact while pretending to abide by them in name. TCI denies having done anything wrong.
3. Begelman, former Office Depot president, aims for a director's position.
Mark Begelman was president of Office Depot in the early 1990s. Martin Hanaka knows the office-supply business too. Hanaka is the former president of Staples. They are both now nominees for the Office Depot board, their names put forward by disaffected investors who want to fire Steve Odland, present CEO.
The company's annual meeting is scheduled for April 23. March 3 is the record date.
That's it for this week. We'll meet again Sunday, proxy-fight fans!
The Times agreed Monday to expand its board of directors by two seats and appoint to those seats Scott Galloway and James Kohlberg. These are two of the nominees who had been on the dissident slate.
This resolution shows either (a) that even the Times with its dual stock structure isn't immune from outside pressures, or (b) that the Times has cleverly fending off a challenge by giving up seats that will prove meaningless, proving that it remains effectively immune to outside pressure.
Your call.
2. CSX files lawsuit.
As regular readers of Proxy Partisans know, the railroad corporation CSX faces a proxy challenge from the London-based hedge fund TCI which contends that the company should: separate the roles of chairman of the board and chief executive; refresh the Board with new independent directors; allow shareholders to call special shareholder meetings; align management compensation with shareholder interests; justify its capital spending plan to shareholders; and provide to shareholders a plan to improve operations.
On Monday, CSX filed a lawsuit in the federal court in Manhattan, where TCI's US operations are based. The allegations are fairly complicated, but the main point of the lawsuit involves federal laws that require that shareholders who own more than a threshold amount of the equity of a company to disclose this fact as they pass the threshold. The idea is to prevent an ambush -- to bring takeover contests and such out into the open.
CSX claims that TCI has played games to hide how much of CSX it owns, violating the threshold rules in fact while pretending to abide by them in name. TCI denies having done anything wrong.
3. Begelman, former Office Depot president, aims for a director's position.
Mark Begelman was president of Office Depot in the early 1990s. Martin Hanaka knows the office-supply business too. Hanaka is the former president of Staples. They are both now nominees for the Office Depot board, their names put forward by disaffected investors who want to fire Steve Odland, present CEO.
The company's annual meeting is scheduled for April 23. March 3 is the record date.
That's it for this week. We'll meet again Sunday, proxy-fight fans!
Subscribe to:
Posts (Atom)
