Equus Total Return is a business development company (BDC) HQ-ed in Houston that trades as a closed-end fund on the New York Stock Exchange. I haven't said anything about BDCs in this blog yet, so perhaps this entry is a good way to start, because they are a peculiar corner of our financial system.
"In what way 'peculiar'? Am I a clown for you? Am I here for your amusement?"
Let me just focus for now on the news, Mr Pesci. Equus faces a proxy fight at the May 12 annual shareholders meeting. The stock price has been rather stagnant recently. It has been trading in a range roughly between $3 a share and $3.50 a share since June 2009.
The Committee to Enhance Equus, owning 11.4% of the outstanding shares of Equus Total Return, Inc., the dissident group, says that it shares its fellow shareholders' disappointment over this stagnation.
"The Committee also notes the current five-member majority of the Board, which includes Kenneth I. Denos, are attempting to further entrench themselves by packing the Board with four new nominees (who do not personally own any Equus shares) without properly investigating their backgrounds."
Equus has responded by noting that the committee has connections with one of Equus' own portfolio companies, Trulite Inc. , a hydrogen fuel cell firm. One of the nominees for director on the dissidents' slate is Jonathan H. Godshall, CEO of Trulite. Its chairman, John D. White, is another. Paula Douglass, a Director of Trulite, is yet a third. The charge, then, is that they want to take over Equus in order to run Equus for Trulite's benefit, not that of its own stockholders.
Wednesday, April 28, 2010
Tuesday, April 27, 2010
Barington Capital Group
Last month the Barington Capital Group sent a letter to the bigwigs of Ameron Int'l Corp. advising Ameron to rationalize and refocus its portfolio.
Ameron (NYSE: AMN), a company based in Pasadena, Calif., producers of water transmission lines and fabricated steel products, such as wind towers; fiberglass-composite pipe for transporting oil, chemicals and corrosive fluids and specialized materials; and products used in infrastructure projects.
As for Barington, we've encountered them once before.
The letter was addressed James S. Marlen, the Chairman and CEO of Ameron. It said that Ameron has unused potential that is being ignored due to its leading market positions, attractive end markets, valuable joint ventures and a healthy, asset-rich balance sheet.
On March 31, Marlen replied, in what sounds like passive-aggressive fashion. "While we wholeheartedly agree with you that Ameron's stock is undervalued given its long list of positive attributes, which include leading market positions, attractive end markets, valuable affiliations and a healthy, asset-rich balance sheet, we disagree with many of your theories as to why Ameron is undervalued. We look forward to discussing these positive attributes with Barington and all of our valued shareholders in the future."
Presumably, then, they do not think that their portfolio of products is inadequately focused.
Ameron (NYSE: AMN), a company based in Pasadena, Calif., producers of water transmission lines and fabricated steel products, such as wind towers; fiberglass-composite pipe for transporting oil, chemicals and corrosive fluids and specialized materials; and products used in infrastructure projects.
As for Barington, we've encountered them once before.
The letter was addressed James S. Marlen, the Chairman and CEO of Ameron. It said that Ameron has unused potential that is being ignored due to its leading market positions, attractive end markets, valuable joint ventures and a healthy, asset-rich balance sheet.
On March 31, Marlen replied, in what sounds like passive-aggressive fashion. "While we wholeheartedly agree with you that Ameron's stock is undervalued given its long list of positive attributes, which include leading market positions, attractive end markets, valuable affiliations and a healthy, asset-rich balance sheet, we disagree with many of your theories as to why Ameron is undervalued. We look forward to discussing these positive attributes with Barington and all of our valued shareholders in the future."
Presumably, then, they do not think that their portfolio of products is inadequately focused.
Monday, April 26, 2010
Principal Place of Business
Recently, in Hertz Corp. v. Friend, the US Supreme Court has unanimously endorsed the so-called "nerve center" test for determining what is a corporation's "principal place of business."
This is an important question in terms of access to the federal courts on a "diversity" rationale. A natural person is deemed to have only one state of residence for purposes of diversity jurisdiction. A corporation is deemed to be a resident of any state in which it is chartered and of the state that is its principal place of business. What does this mean? There has been what the law firm Blank & Rome has called a "cacophony of approaches," circuit by circuit, and SCOTUS now wants to turn this into more of a melody.
In the instant dispute, Friend et al. sued Hertz in a California state court seeking damages for what they claimed were California's wages and hopurs laws. Hertz, presumably believing it would receive better treatment in federal court, sought to remove the issue to same on ground of diversity of citizenship. The federal district court in California refused to take the case. It said Hertz was a citizen of California, so there was no diversity.
SCOTUS has now reversed that, finding that Hertz' nerve center is in New Jersey, so it may get into federal court.
The meaning of the phrase "principal place of business" is also a contested one in the context of bankruptcy, as SCOTUS observed.
Here's a quite recent illustration of that fact.
This is an important question in terms of access to the federal courts on a "diversity" rationale. A natural person is deemed to have only one state of residence for purposes of diversity jurisdiction. A corporation is deemed to be a resident of any state in which it is chartered and of the state that is its principal place of business. What does this mean? There has been what the law firm Blank & Rome has called a "cacophony of approaches," circuit by circuit, and SCOTUS now wants to turn this into more of a melody.
In the instant dispute, Friend et al. sued Hertz in a California state court seeking damages for what they claimed were California's wages and hopurs laws. Hertz, presumably believing it would receive better treatment in federal court, sought to remove the issue to same on ground of diversity of citizenship. The federal district court in California refused to take the case. It said Hertz was a citizen of California, so there was no diversity.
SCOTUS has now reversed that, finding that Hertz' nerve center is in New Jersey, so it may get into federal court.
The meaning of the phrase "principal place of business" is also a contested one in the context of bankruptcy, as SCOTUS observed.
Here's a quite recent illustration of that fact.
Sunday, April 25, 2010
WellCare Health
The story about WellCare Health seems to have been rather buried in the weekend edition of The Wall Street Journal. But it's there if you look. Furthermore, if you do find it on page B6 you might skip right by it because the headline is misleadingly anodyne.
The headline is "Director Resigns at Wellcare Health," -- which sounds as if the story is a mere personnel matter, not a significant accusation. The subhead doesn't help much. It says "Head of Audit Committee Raises Questions About Company's Accounting." She did more than raise questions. She made statements. And they weren't about "accounting." This isn't an issue concerning, say, mark-to-market versus mark-to-model. This has to to with overcharges, and potentially it seems with fraud.
Here's a link to the resignation letter, dated April 21.
Regina Herzlinger, the head of the audit committee of the board of directors at WellCare, has resigned from the board and has made significant accusations on her way out the door. She says internal audits have found that WellCare overbilled Medicaid program of the state of Illinois by $1 million in 2009 and potentially overcharged states by almost half a million dollars more in connection with maternity care.
Nor does she regard this sort of thinbg as the result of honest mistakes. She also writes, after all, of "facially credible evidence of an unlawful agreement among at least Chairman Chuck Berg, Director Chris Michalik, and Lead Director Hickey to seize control of the Board regardless of the best interests of shareholders."
WellCare has a history. Back in the fall of 2007, 200 state and federal agents raided company headquarters in a dispute that led to the restatement of three years of earnings, and the firing of three of the entity's top executives. Last year, Georgia's Dept. of Community Health fined WellCare $610,000 in connection with the company's failure to account for each patient visit in which it paid providers.
The headline is "Director Resigns at Wellcare Health," -- which sounds as if the story is a mere personnel matter, not a significant accusation. The subhead doesn't help much. It says "Head of Audit Committee Raises Questions About Company's Accounting." She did more than raise questions. She made statements. And they weren't about "accounting." This isn't an issue concerning, say, mark-to-market versus mark-to-model. This has to to with overcharges, and potentially it seems with fraud.
Here's a link to the resignation letter, dated April 21.
Regina Herzlinger, the head of the audit committee of the board of directors at WellCare, has resigned from the board and has made significant accusations on her way out the door. She says internal audits have found that WellCare overbilled Medicaid program of the state of Illinois by $1 million in 2009 and potentially overcharged states by almost half a million dollars more in connection with maternity care.
Nor does she regard this sort of thinbg as the result of honest mistakes. She also writes, after all, of "facially credible evidence of an unlawful agreement among at least Chairman Chuck Berg, Director Chris Michalik, and Lead Director Hickey to seize control of the Board regardless of the best interests of shareholders."
WellCare has a history. Back in the fall of 2007, 200 state and federal agents raided company headquarters in a dispute that led to the restatement of three years of earnings, and the firing of three of the entity's top executives. Last year, Georgia's Dept. of Community Health fined WellCare $610,000 in connection with the company's failure to account for each patient visit in which it paid providers.
Wednesday, April 21, 2010
CFS Bancorp Meeting, April 27
CFS Bancorp, the Indiana-based holding company that operates Citizens Financial, holds its annual shareholder meeting in less than a week.
A proxy contest is underway, because PL Capital Group, which owns 9.9% of the common stock, wants to put John Palmer on the board.
The company has received some assistance of late, because Glass Lewis has recommended a vote in favor of the election of the board's nominees. Glass Lewis says "we are not convinced that the Dissident should be elected to the CFS Board."
Glass, Lewis & Co. serves institutional investors that collectively manage more than $17 trillion in assets, and conducts research focused on the long-term financial impact of investment and proxy decisions. In its report, Glass, Lewis, speaking to one of the contested issues behind the proxy fight, said that it considers the retention bonuses paid by issuer to be appropriate, "given the company's reasonable pay-for-performance and the cancellation of cash bonuses despite [named executive officers] meeting portions of their individual performance objectives."
One of the issues here involves the charge of nepotism. The chairman of CFS is Thomas Prisby. The company employs two of his children -- Michael and Sandra Prisby. But Glass Lewis writes soothingly, "we do not feel that the Dissident's intent to eliminate all related party transactions, including the employment of Michael and Sandy Prisby are in the best interests of shareholders in this case."
Another proxy advisory group has taken the opposite side. Proxy Governance has written, “Given the other significant issues the dissidents have raised about the board’s attention to important governance details – the structure of certain bonus programs even as shareholder value plummeted, and the board’s acceptance of unnecessary related party transactions with the CEO’s direct family members – we believe shareholders will be best served by electing the dissident nominee, J. Palmer.”
A proxy contest is underway, because PL Capital Group, which owns 9.9% of the common stock, wants to put John Palmer on the board.
The company has received some assistance of late, because Glass Lewis has recommended a vote in favor of the election of the board's nominees. Glass Lewis says "we are not convinced that the Dissident should be elected to the CFS Board."
Glass, Lewis & Co. serves institutional investors that collectively manage more than $17 trillion in assets, and conducts research focused on the long-term financial impact of investment and proxy decisions. In its report, Glass, Lewis, speaking to one of the contested issues behind the proxy fight, said that it considers the retention bonuses paid by issuer to be appropriate, "given the company's reasonable pay-for-performance and the cancellation of cash bonuses despite [named executive officers] meeting portions of their individual performance objectives."
One of the issues here involves the charge of nepotism. The chairman of CFS is Thomas Prisby. The company employs two of his children -- Michael and Sandra Prisby. But Glass Lewis writes soothingly, "we do not feel that the Dissident's intent to eliminate all related party transactions, including the employment of Michael and Sandy Prisby are in the best interests of shareholders in this case."
Another proxy advisory group has taken the opposite side. Proxy Governance has written, “Given the other significant issues the dissidents have raised about the board’s attention to important governance details – the structure of certain bonus programs even as shareholder value plummeted, and the board’s acceptance of unnecessary related party transactions with the CEO’s direct family members – we believe shareholders will be best served by electing the dissident nominee, J. Palmer.”
Tuesday, April 20, 2010
Canadian mining
Here's a link to a very well-written article about the Canadian mining industry, a story that ran April 6 in the Financial Post Magazine.
Reporter Karen Mazurkewich adopts an almost elegaic tone as she ticks off the names of the great mining companies who have played a big part in that country's history:
Barrick Gold Corp., Falconbridge Ltd., Noranda Inc., Inco Ltd., Teck Resources Ltd.
These companies have either been swallowed up by foreign concerns, or they are now doing their mining outside Canada.
Is this because Canada's mineral wealth has been exhausted? Not at all. As Mazurkewich notes, the industry momentum has stalled due to "rising energy and labour costs, First Nations' protests, a provincial stealth tax on diamonds in Ontario and moratoriums on exploration."
She quoted Warren Irwin, a name that leaders of this blog may remember. Irwin, president and president and chief investment officer of Toronto's Rosseau Asset Management, which is invested in Noront Resources, says that battles with First Nation groups have made the climate too uncertain.
"Ontario thinks of itself as a stable world-class mining jurisdiction, but the reality outside is that it can get pretty lawless for exploration companies, and the government has been turning a blind eye to it," says Irwin. "As a direct result of the uncertainty in investing in mining in Ontario we have been forced to go to other jurisdictions for investments."
This blog can offer him nothing but a sympathetic ear, but it does offer that.
Reporter Karen Mazurkewich adopts an almost elegaic tone as she ticks off the names of the great mining companies who have played a big part in that country's history:
Barrick Gold Corp., Falconbridge Ltd., Noranda Inc., Inco Ltd., Teck Resources Ltd.
These companies have either been swallowed up by foreign concerns, or they are now doing their mining outside Canada.
Is this because Canada's mineral wealth has been exhausted? Not at all. As Mazurkewich notes, the industry momentum has stalled due to "rising energy and labour costs, First Nations' protests, a provincial stealth tax on diamonds in Ontario and moratoriums on exploration."
She quoted Warren Irwin, a name that leaders of this blog may remember. Irwin, president and president and chief investment officer of Toronto's Rosseau Asset Management, which is invested in Noront Resources, says that battles with First Nation groups have made the climate too uncertain.
"Ontario thinks of itself as a stable world-class mining jurisdiction, but the reality outside is that it can get pretty lawless for exploration companies, and the government has been turning a blind eye to it," says Irwin. "As a direct result of the uncertainty in investing in mining in Ontario we have been forced to go to other jurisdictions for investments."
This blog can offer him nothing but a sympathetic ear, but it does offer that.
Monday, April 19, 2010
Lennar Corp.
Lennar Corp. is attracting the wrong sort of attention these days. I might as well put this blog officially on that bandwagon.
Lennar, which is based in Florida, is the third-biggest homebuilder in the United States.
Back in 2006, when home building still seemed like a bullet-proof business to be in, Lennar and LNR Property Corp. co-owned a large property north of Los Angeles, Calif., known as Newhall Ranch. They agreed, at the urging of go-between Victor MacFarlane, to sell a majority stake in that property to the California public retirement system, CalPERS, for $970 million. The land sat along the I-5 corridor, a developers' dream. What could go wrong?
A good deal did go wrong with this joint venture, known as LandSource. CalPERS lost $1.2 billion, and this rather dented that pension system's previously high reputation for making prudent investment calls.
That was the least of things. It appears that this year federal criminal investigators have become interested in the LandSource imbroglio.
The Fraud Discovery Institute has listed the LandSource matter as one of several red flags indicating, in FDI's words, that something RICO-actionable is underway in Lennar. It portrays LandSource (I'm paraphrasing here) as a classic pump-and-dump situation, in which Lennar took the money while the gettin' was good.
It obviously isn't illegal, or wrong, to buy low and sell high. But the FDI regards the LandSource deal as part of a broader pattern of behavior -- one of many red flags, which also allegedly included such matters as a falsified HUD document, civil complaints by homeowners, F grades from the Better Business Bureau, etc. They put together an intriguing case.
Here's what Tracy Coenen has had to say.
I've focused on the CalPERS loss here because ... well, because that is eye-catching, given CalPERS' image and broader significance for widows and orphans. But I'll be trying to catch up on this story in its other aspects as it develops.
Lennar, which is based in Florida, is the third-biggest homebuilder in the United States.
Back in 2006, when home building still seemed like a bullet-proof business to be in, Lennar and LNR Property Corp. co-owned a large property north of Los Angeles, Calif., known as Newhall Ranch. They agreed, at the urging of go-between Victor MacFarlane, to sell a majority stake in that property to the California public retirement system, CalPERS, for $970 million. The land sat along the I-5 corridor, a developers' dream. What could go wrong?
A good deal did go wrong with this joint venture, known as LandSource. CalPERS lost $1.2 billion, and this rather dented that pension system's previously high reputation for making prudent investment calls.
That was the least of things. It appears that this year federal criminal investigators have become interested in the LandSource imbroglio.
The Fraud Discovery Institute has listed the LandSource matter as one of several red flags indicating, in FDI's words, that something RICO-actionable is underway in Lennar. It portrays LandSource (I'm paraphrasing here) as a classic pump-and-dump situation, in which Lennar took the money while the gettin' was good.
It obviously isn't illegal, or wrong, to buy low and sell high. But the FDI regards the LandSource deal as part of a broader pattern of behavior -- one of many red flags, which also allegedly included such matters as a falsified HUD document, civil complaints by homeowners, F grades from the Better Business Bureau, etc. They put together an intriguing case.
Here's what Tracy Coenen has had to say.
I've focused on the CalPERS loss here because ... well, because that is eye-catching, given CalPERS' image and broader significance for widows and orphans. But I'll be trying to catch up on this story in its other aspects as it develops.
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