The Delaware Court of Chancery recently dismissed a challenge to Selectica's shareholder rights plan, i.e. its "poison pill."
The facts of this case take us back to November 11, 2008, when Versata Enterprises, Inc. and related parties filed a Schedule 13D disclosing a 5.1% ownership position in Selectica common stock. Selectica had a poison pill plan in place at that time, but it had (as is/was the custom) a 15% triggering threshold, so Versata had no reason to believe that this was an epochal moment.
Six days later, though, apparently because of concern that futher share accumulation would have an impact on its own net operating loss carry forwards (NOLs), Selectica amended its pison pill to reduce the triggering threshold to 4.99%. Holders who had more than that before the adoption of the new plan were exempted, providing they didn't thereafter acquire another half percent.
On November 19, Versata updated its 13D filing to disclose a 6.1% ownership interest. It is unclear whether Versata was aware of the reduction in the triggering threshold two days earlier. From there we got to this, the board pulled the trigger (swallowed the pill, whatever the pertinent metaphor might be) on January 2, 2009.
Key takeaways fgrom the Chancery Court decision upholding Selectica:
1. Loss of NOLs is a legally cognizable threat under Unocal Corp. v. Mesa Petroleum Co.
2. There is nothing de jure about a 15% threshold, it has been simply a custom.
3. A decision to lower the trigger in the face of a legally cognizable threat is not per se invalid under Delaware law.
Showing posts with label 13D filings. Show all posts
Showing posts with label 13D filings. Show all posts
Tuesday, March 9, 2010
Monday, May 11, 2009
Ackman and Target
William Ackman, the principal of Pershing Square, is hosting what he calls a "town meeting" today, to introduce his nominees for the board of big-box retailer Target.
Isn't that a wonderful name for such an anouncement? Reminds me of a Norman Rockwell painting. In fact, I think I'll post a photo of the relevant painting here. I gather that is supposed to be some ordinary townfolk telling his neighbors what he thinks about putting a stoplight in at State & Main.
Anyway, Ackman's nominees are as follows: himself, Michael Ashner, James Donald, Ronald Gilson, and Richard Vague. If they are successful, they will replace the following incumbents: Mary Dillon, Richard N. Kovacecich, George W. Tamke, and Solomon D. Trujillo.
Why is a slate with five names contesting a slate with four names? Apparently there is a dispute over the size of the board. Ackman believes the board ought to have 13 seats rather than 12, and that 5 of those 13 ought to be up for decision at the forthcoming annial meeting. The company holds ithas a 12 member classified board, with just the four seats at issue this year.
Target Corporation's retail segment includes general merchandise and food discount stores and Target.com, a fully integrated on-line business. In addition, the company operates a credit card segment that offers both store-brand credit cards and VISAs. The company, which operates 1,699 stores in 49 states (which state is excluded? -- I can't tell you) has sufered a severe stock price decline of late, which has ticked off Mr. Ackman, who seems to have bought in at the peak.
The Financial Times quotes Ackman thus: "This is not a poorly managed company. this is really just about improving the board."
It seems sensible to presume that dysfunctions at the board will also show up in the management. If they don't, how dysfunctional can they be? This one confuses me a bit.
I appreciate the excuse to steal the Rockwell image, though.
Tuesday, August 26, 2008
CSX/TCI Arguments
Yesterday, the second circuit court of appeals heard arguments from lawyers on both sides of the CSX/TCI case.
There are several issues at stake. I am especially interested inone: the relevance (or otherwise) of an investor's position in total return swaps to the disclosures required by 13D.
Why is that important? Because it is part of the much broader question of whether ownership is a single fact or an arbitrary bundle. When I went to law school, the basic property law course began with an effort to disabuse students of the naive idea that ownership is a simple solid sort of fact. The ownership of land, for example, consists of the right to exclude others from it, the right to reside there and enjoy it, the right to sell it in whole or in part, the right to lease it out, etc.
When can contracting parties break up the bundle and redistribute elements of ownership to their hearts content? when are they stuck with a stick simply becauise they're holding another stick thereof?
The trial court judge in this case rendered a decision that strongly implies that the bundle isn't arbitrary, and thus isn't infinitely malleable. Not, at any rate, in the matter of the ownership of shares of stock. Now we'll see how well that inference does at the next level up the judicial hierarchy.
That's an amateur historian/philosopher's view of the case, not the way the lawyers will describe the issues. What lawyers will tell you is that the fund is obligated to report beneficial ownership of equity securities, AND the refrain from engaging in any "scheme to evade" that requirement. The railroad pitched two different theories to the trial court: that the cash-settled derivatives that TCI owned are in effect equity securities, or that for quite specific reasons that may not apply in a lot of other cases the fund was employing those derivatives as part of a scheme to evade. There is, in short, both a broad and a narrow theory at stake.
The trial court judge indicated that if he feels sympathetic toward the broader theory. But that was as lawyers say "dicta." He actually ruled against TCI, to the extent that he did, only on the narrower theory.
The appeals court could, for all I know to the contrary, reject both theories and find that TCI's actions were as pure as the driven snow. Or it could accept the broad theory.
The betting line at the moment, though, is that the appellate court like the trial court will "split the difference" and go with the narrower theory. Although even within the narrower theory there's a lot of room for differences between the two courts and there will certainly be some. A simple "judgment affirmed" isn't in the cards. That is the one point on which I am bold enough to make a prediction.
We'll see how things shake themselves out.
There are several issues at stake. I am especially interested inone: the relevance (or otherwise) of an investor's position in total return swaps to the disclosures required by 13D.
Why is that important? Because it is part of the much broader question of whether ownership is a single fact or an arbitrary bundle. When I went to law school, the basic property law course began with an effort to disabuse students of the naive idea that ownership is a simple solid sort of fact. The ownership of land, for example, consists of the right to exclude others from it, the right to reside there and enjoy it, the right to sell it in whole or in part, the right to lease it out, etc.
When can contracting parties break up the bundle and redistribute elements of ownership to their hearts content? when are they stuck with a stick simply becauise they're holding another stick thereof?
The trial court judge in this case rendered a decision that strongly implies that the bundle isn't arbitrary, and thus isn't infinitely malleable. Not, at any rate, in the matter of the ownership of shares of stock. Now we'll see how well that inference does at the next level up the judicial hierarchy.
That's an amateur historian/philosopher's view of the case, not the way the lawyers will describe the issues. What lawyers will tell you is that the fund is obligated to report beneficial ownership of equity securities, AND the refrain from engaging in any "scheme to evade" that requirement. The railroad pitched two different theories to the trial court: that the cash-settled derivatives that TCI owned are in effect equity securities, or that for quite specific reasons that may not apply in a lot of other cases the fund was employing those derivatives as part of a scheme to evade. There is, in short, both a broad and a narrow theory at stake.
The trial court judge indicated that if he feels sympathetic toward the broader theory. But that was as lawyers say "dicta." He actually ruled against TCI, to the extent that he did, only on the narrower theory.
The appeals court could, for all I know to the contrary, reject both theories and find that TCI's actions were as pure as the driven snow. Or it could accept the broad theory.
The betting line at the moment, though, is that the appellate court like the trial court will "split the difference" and go with the narrower theory. Although even within the narrower theory there's a lot of room for differences between the two courts and there will certainly be some. A simple "judgment affirmed" isn't in the cards. That is the one point on which I am bold enough to make a prediction.
We'll see how things shake themselves out.
Wednesday, October 31, 2007
Cabbage Night
The morning before Halloween -- usually a good day to see toilet paper hanging from trees, since it's the morning after what we used to call "cabbage night."
I took a bit of a walk this morning, and saw only a couple examples of such youthful enterprise. As my brother and walking partner explained, the great thing about TP is that it dissolves with a couple of rains or even a couple of frosts. The vandals get to feel they've gotten away with something, and the homeowners don't have to work very hard at a clean-up.
All of this is by analogy pertinent to the matter I've been discussing all week, the rebuff by BEA Systems of Oracle's effort to buy their equity, and Icahn's unhappiness at that.
For when a large shareholder is unhappy, one of the more amusing ways in which he can vent that unhappiness is with a letter to the board of directors, and the required 13d filing of that letter with the SEC. The point of these letters isn't that the directors should read it -- but that the SEC will post it on its website and the rest of the world can read it. It's like the TP on that tree in your lawn: it isn't there for your benefit so much as for that of passers-by. And although it may signal coming struggles, the 13D is in itself harmless enough, disappearing after a couple of good rains.
Icahn's recent letter to the board of BEA, as you can discover for yourself from the SEC site (or just read it here -- I'll mine that site so you don't have to) takes a stern tone:
"You should have no doubt that I intend to hold each of you personally
responsible to act on behalf of BEA's shareholders in full compliance with the
high standards that your fiduciary duties require, especially in light of your
past record. Responsibility means that SHAREHOLDERS SHOULD HAVE THE CHOICE
whether or not to sell BEA. BEA belongs to its shareholders not to you."
Caps in original.
I have to say: there are other activist investors who write this sort of letter with a good deal more panache. Robert Chapman has written some classics. He once wrote to the directors of one of the companies in his portfolio: "In essence, you should live and breathe under the cloud that your past failures have subjugated you into a state of perpetual audit."
That's the spirit!
I took a bit of a walk this morning, and saw only a couple examples of such youthful enterprise. As my brother and walking partner explained, the great thing about TP is that it dissolves with a couple of rains or even a couple of frosts. The vandals get to feel they've gotten away with something, and the homeowners don't have to work very hard at a clean-up.
All of this is by analogy pertinent to the matter I've been discussing all week, the rebuff by BEA Systems of Oracle's effort to buy their equity, and Icahn's unhappiness at that.
For when a large shareholder is unhappy, one of the more amusing ways in which he can vent that unhappiness is with a letter to the board of directors, and the required 13d filing of that letter with the SEC. The point of these letters isn't that the directors should read it -- but that the SEC will post it on its website and the rest of the world can read it. It's like the TP on that tree in your lawn: it isn't there for your benefit so much as for that of passers-by. And although it may signal coming struggles, the 13D is in itself harmless enough, disappearing after a couple of good rains.
Icahn's recent letter to the board of BEA, as you can discover for yourself from the SEC site (or just read it here -- I'll mine that site so you don't have to) takes a stern tone:
"You should have no doubt that I intend to hold each of you personally
responsible to act on behalf of BEA's shareholders in full compliance with the
high standards that your fiduciary duties require, especially in light of your
past record. Responsibility means that SHAREHOLDERS SHOULD HAVE THE CHOICE
whether or not to sell BEA. BEA belongs to its shareholders not to you."
Caps in original.
I have to say: there are other activist investors who write this sort of letter with a good deal more panache. Robert Chapman has written some classics. He once wrote to the directors of one of the companies in his portfolio: "In essence, you should live and breathe under the cloud that your past failures have subjugated you into a state of perpetual audit."
That's the spirit!
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