It has been a big year for consolidation among stock, options, and futures exchanges worldwide. It just seems to make sense, as the geographical proximity grows less relevant to investors, traders, and brokers alike.
The London Stock Exchange is now about one-third owned by enterprises that are themselves the arms of two rival Gulf states. Eventually, it seems the LSE will enter into a combination either with the Qatar Investment Authority or with the Dubai Borse. Which one? -- that is in Allah's hands.
The Chicago Mercantile Exchange and the Chicago Board of Trade, once fierce rivals despite their proximity, are now among the parts of the CME Group.
The New York Board of Trade is now a subsidiary of Atlanta based Intercontinental Exchange.
That will suffice for examples for now, though it would be easy to lengthen the list, even staying strictly within developments of 2007.
This leaves the question: why is Nymex still a stand-alone? and how long will that remain the case?
Steven Sears, writing in Barron's recently, suggested one reason. The internal politics at Nymex is, he says, of such distressing complexity that a potential acquirer might wisely want to steer clear of it. In the same way that a wise superpower might want to avoid sending an occupation force to a country with ... oh, never mind.
Sunday, November 25, 2007
Wednesday, November 21, 2007
Shake-up at H&R Block
The tax-preparation company, H&R Block, announced yesterday that its Chairman and CEO, Mark A. Ernst, has resigned from both of those posts.
Ernst has been replaced as chief executive, on an interim basis, by Alan Bennett.
The new chairman is Richard Breeden, and that (for proxy partisans) is the story here.
Breeden has wanted Ernst out of the way for some time. Breeden, who was the chairman of the Securities and Exchange Commission through most of the administration of George H.W. Bush, has been keeping busy recently as the manager of a hedge fund, aptly called Breeden Partners. In that capacity, he's been a very activist stockholder in a variety of the companies in his fund's portfolio.
One of those companies, of course, is H&R Block. And Breeden's contention is that under Ernst, the company has drifted from its moorings as a tax-services company, ineffectively dabbling in other fields. He's presumably going to be a back-to-basics kind of chairman.
Breeden's unhappiness on this point appears to have preceded, but it was certainly fed by, this summer's subprime mortgage crisis, which hit H&R's mortgage lending unit especially hard.
One analyst is quoted in today's WSJ saying: "H&R Block has delayed recogizing the losses in their subprime businesses ... because they were trying to get the sale done with Cerberus."
Cerberus. That darned dog shows up everywhere, doesn't he?
But congrats to Breeden, and I hope his victory doesn't end up giving him indigestion. I may need the services of the company he's now heading ... next March or thereabouts.
I wish everyone celebrating the holiday tomorrow the best for the long weekend. You'll hear from me again here on Sunday.
Ernst has been replaced as chief executive, on an interim basis, by Alan Bennett.
The new chairman is Richard Breeden, and that (for proxy partisans) is the story here.
Breeden has wanted Ernst out of the way for some time. Breeden, who was the chairman of the Securities and Exchange Commission through most of the administration of George H.W. Bush, has been keeping busy recently as the manager of a hedge fund, aptly called Breeden Partners. In that capacity, he's been a very activist stockholder in a variety of the companies in his fund's portfolio.
One of those companies, of course, is H&R Block. And Breeden's contention is that under Ernst, the company has drifted from its moorings as a tax-services company, ineffectively dabbling in other fields. He's presumably going to be a back-to-basics kind of chairman.
Breeden's unhappiness on this point appears to have preceded, but it was certainly fed by, this summer's subprime mortgage crisis, which hit H&R's mortgage lending unit especially hard.
One analyst is quoted in today's WSJ saying: "H&R Block has delayed recogizing the losses in their subprime businesses ... because they were trying to get the sale done with Cerberus."
Cerberus. That darned dog shows up everywhere, doesn't he?
But congrats to Breeden, and I hope his victory doesn't end up giving him indigestion. I may need the services of the company he's now heading ... next March or thereabouts.
I wish everyone celebrating the holiday tomorrow the best for the long weekend. You'll hear from me again here on Sunday.
Tuesday, November 20, 2007
Proxy Rules Debate
The ongoing debate over the SEC rules and "proxy access" reached the banking committee of the US Senate last week.
As regular readers of my other blog, Pragmatism Refreshed, (cfaille.blogspot.com) know, I'm all in favor of the Second Circuit's AFSCME decision, and in favor of letting it stand. The decision opened the doors for a sort of meta-election, in which dissident stockholders can get on a proxy ballot asking the whole body of shareholders to determine rules for directorial elections.
I'm happy about AFSCME not despite the possibility that it will prove a "slippery slope," to other avenues for shareholder democracy, but largely because it might.
By itself, this is a small matter. I can't imagine a lot of election-rules tinkering breaking out in corporate America as a result of anything the SEC does or doesn't do, nor do I think a lot of good would be accomplished it it did.
Still, the shareholders own the company, and it is good to remind the company management, their employees, of that simple fact.
At any rate, the SEC has under consideration two rule proposals which would (to differing degrees) cut back on the AFSCME precedent. Those rules were the subject of the banking committee hearing last week, and SEC chairman Cox gave the usual bureaucratic on-the-one hand but on-the-other-hand sort of testimony.
I think the very fact that the SEC is short handed now will prevent it from doing anything rash in the immediate future. Its good to know, though, that the members of that agency know that the legislature, with its oversight responsibilities in mind, is looking over their shoulder.
As regular readers of my other blog, Pragmatism Refreshed, (cfaille.blogspot.com) know, I'm all in favor of the Second Circuit's AFSCME decision, and in favor of letting it stand. The decision opened the doors for a sort of meta-election, in which dissident stockholders can get on a proxy ballot asking the whole body of shareholders to determine rules for directorial elections.
I'm happy about AFSCME not despite the possibility that it will prove a "slippery slope," to other avenues for shareholder democracy, but largely because it might.
By itself, this is a small matter. I can't imagine a lot of election-rules tinkering breaking out in corporate America as a result of anything the SEC does or doesn't do, nor do I think a lot of good would be accomplished it it did.
Still, the shareholders own the company, and it is good to remind the company management, their employees, of that simple fact.
At any rate, the SEC has under consideration two rule proposals which would (to differing degrees) cut back on the AFSCME precedent. Those rules were the subject of the banking committee hearing last week, and SEC chairman Cox gave the usual bureaucratic on-the-one hand but on-the-other-hand sort of testimony.
I think the very fact that the SEC is short handed now will prevent it from doing anything rash in the immediate future. Its good to know, though, that the members of that agency know that the legislature, with its oversight responsibilities in mind, is looking over their shoulder.
Monday, November 19, 2007
Votes to Withhold
Suppose the incumbent directors of a company are running unopposed for re-election. For whatever combination of reasons, opposition has developed too late to meet the deadline for the filing of an alternative slate. But, now, opposition HAS developed.
Is there any significant manner in which it may express itself? Yes.
Stockholders may withhold their votes (or, as it is sometimes put, they may vote Withhold). Sometimes an impressive showing in a vote-withhold campaign will make the point.
The already-classic example of this played out at Disney in 2004 - 2005. It was in March of the first of those years that Disney's shareholders withheld 43% of the votes for the re-election of Michael Eisner as a member of the board.
The campaign that achieved this result was led largely by Roy Disney, Walt's nephew. Eisner remained on the board, but the other members reacted to the 43% vote by stripping him of the chairmanship. He stepped down as CEO a little more than a year later.
This comes to mind right now because I've been following the aftermath of a shareholders meeting at a company somewhat less visible than Disney: at Sparton Corp., a Michigan based manufacturer of circuit boards. There was a withhold campaign here, too.
in August one activist investor declared in a letter that he has "become increasingly troubled by the Board's inaction and acquiescence to Sparton's perennially underperforming management team—a team that has presided over a decades-long decline in both the Company's book and stock values." The meeting took place in October.
That investor, Andrew Shapiro, told me when I interviewed him early this month that he has been somewhat surprised that Sparton hasn't yet disclosed the size of the "withhold" vote, though he infers from what the company has disclosed that the number is 30%.
He also advocates what one might call a stand on fiduciary principle -- the members of the board should press the CEO to doff his other hat, as trustee of the Sparton Defined Benefit Pension Plan. This is a conflict: the pension plan has over-invested in Sparton common stock, Shapiro contends. This in turn has contributed to the entrenchment of the incumbent board.
Although the spelling of the company's name isn't quite right for it, I did try to work in some reference to a stand at Thermopylae in this blog entry. Really I did. I couldn't bring it off, though, unless this meta-reference counts.
Is there any significant manner in which it may express itself? Yes.
Stockholders may withhold their votes (or, as it is sometimes put, they may vote Withhold). Sometimes an impressive showing in a vote-withhold campaign will make the point.
The already-classic example of this played out at Disney in 2004 - 2005. It was in March of the first of those years that Disney's shareholders withheld 43% of the votes for the re-election of Michael Eisner as a member of the board.
The campaign that achieved this result was led largely by Roy Disney, Walt's nephew. Eisner remained on the board, but the other members reacted to the 43% vote by stripping him of the chairmanship. He stepped down as CEO a little more than a year later.
This comes to mind right now because I've been following the aftermath of a shareholders meeting at a company somewhat less visible than Disney: at Sparton Corp., a Michigan based manufacturer of circuit boards. There was a withhold campaign here, too.
in August one activist investor declared in a letter that he has "become increasingly troubled by the Board's inaction and acquiescence to Sparton's perennially underperforming management team—a team that has presided over a decades-long decline in both the Company's book and stock values." The meeting took place in October.
That investor, Andrew Shapiro, told me when I interviewed him early this month that he has been somewhat surprised that Sparton hasn't yet disclosed the size of the "withhold" vote, though he infers from what the company has disclosed that the number is 30%.
He also advocates what one might call a stand on fiduciary principle -- the members of the board should press the CEO to doff his other hat, as trustee of the Sparton Defined Benefit Pension Plan. This is a conflict: the pension plan has over-invested in Sparton common stock, Shapiro contends. This in turn has contributed to the entrenchment of the incumbent board.
Although the spelling of the company's name isn't quite right for it, I did try to work in some reference to a stand at Thermopylae in this blog entry. Really I did. I couldn't bring it off, though, unless this meta-reference counts.
Sunday, November 18, 2007
The time for gratitude approaches
Let's cast our minds back to the earlier months of this year, because I'd like to say something about two decisions in the Delaware Chancery Court for which members of incumbent boards of directors might be a bit grateful when they bite into their Turkey or Turducken or tofu creation this coming Thursday.
In January 2007. an activist hedge fund, Harbinger Capital Partners, sued Openwave Systems, a California software company of which it held a substantial block of stock.
Harbinger said that it had nominated two candidiates for the board of directors, and that Openwave was putting obstacles in the way of a fair vote.
The matter was tried in March, and the court issued its decision in May. In essence, the court acknowledged that Openwave's bylaws governing elections were on one reading blatantly contradictory and on any reading at least confusing. Still, it upheld the exclusion of the slate that Harbinger had sought to nominate.
“Confusion does not excuse Harbinger’s failure to comply,” reads one subhead in the court’s opinion, issued in May. It was all reminescent of the butterfly ballots in a certain Florida election in November 2000. Yes, they were confusing, but the results stand.
Another hedge fund, Pershing Square LP, challenged another incumbent board of directors, and brought a claim before the Delaware Chancery Court at around the same time that Harbinger's was pending.
In the course of a proxy fight concerning Ceridian, Pershing Square had sought access to letters written by senior management figures. It suspected (because of a leaker) that the letters contained allegations of mismanagement on the part of a former chief executive of Ceridian and an absence of oversight on the part of the board.
The court decided that the stockholders weren’t entitled to the letters at issue. “A corporate defendant may resist demand where it shows that the stockholder’s stated proper purpose is not the actual purpose for the demand,” it wrote. This is all rather unkind to the old-fashioned notion that shareholder own the darned company. Shouldn't they be able to demand pertinent documents without undergoing a session on the couch to alow Dr. Freud to figure out their 'real' motivation.
Of course, it's Oedipal! The hedge fund, the court rather accusatorily opined, just wanted “to find a legal vehicle by which Pershing Square can publicly broadcast improperly obtained confidential information.” The court said that it must protect the confidentiality of certain exchanges in order not to chill the candid expression of views among executives and directors, so … Pershing lost.
Delaware is still largely an incumbent board's state, which is of course why company's continue to incorporate there.
Do I have any reforms to propose? Heck, no. Hedge fund managers are big boys and they can take a couple of set-backs like this. Over time, the pressure of economic reality and ther litigation it generates does transform legal systems, even Delaware's corporate law. But it is a slow process, as perhaps it should be, and the gladiators give some of us spectators some grist for our analytical mills.
For which I am grateful.
In January 2007. an activist hedge fund, Harbinger Capital Partners, sued Openwave Systems, a California software company of which it held a substantial block of stock.
Harbinger said that it had nominated two candidiates for the board of directors, and that Openwave was putting obstacles in the way of a fair vote.
The matter was tried in March, and the court issued its decision in May. In essence, the court acknowledged that Openwave's bylaws governing elections were on one reading blatantly contradictory and on any reading at least confusing. Still, it upheld the exclusion of the slate that Harbinger had sought to nominate.
“Confusion does not excuse Harbinger’s failure to comply,” reads one subhead in the court’s opinion, issued in May. It was all reminescent of the butterfly ballots in a certain Florida election in November 2000. Yes, they were confusing, but the results stand.
Another hedge fund, Pershing Square LP, challenged another incumbent board of directors, and brought a claim before the Delaware Chancery Court at around the same time that Harbinger's was pending.
In the course of a proxy fight concerning Ceridian, Pershing Square had sought access to letters written by senior management figures. It suspected (because of a leaker) that the letters contained allegations of mismanagement on the part of a former chief executive of Ceridian and an absence of oversight on the part of the board.
The court decided that the stockholders weren’t entitled to the letters at issue. “A corporate defendant may resist demand where it shows that the stockholder’s stated proper purpose is not the actual purpose for the demand,” it wrote. This is all rather unkind to the old-fashioned notion that shareholder own the darned company. Shouldn't they be able to demand pertinent documents without undergoing a session on the couch to alow Dr. Freud to figure out their 'real' motivation.
Of course, it's Oedipal! The hedge fund, the court rather accusatorily opined, just wanted “to find a legal vehicle by which Pershing Square can publicly broadcast improperly obtained confidential information.” The court said that it must protect the confidentiality of certain exchanges in order not to chill the candid expression of views among executives and directors, so … Pershing lost.
Delaware is still largely an incumbent board's state, which is of course why company's continue to incorporate there.
Do I have any reforms to propose? Heck, no. Hedge fund managers are big boys and they can take a couple of set-backs like this. Over time, the pressure of economic reality and ther litigation it generates does transform legal systems, even Delaware's corporate law. But it is a slow process, as perhaps it should be, and the gladiators give some of us spectators some grist for our analytical mills.
For which I am grateful.
Wednesday, November 14, 2007
Four Days a Week
Just a scheduling note. I've fallen into a pattern and it makes sense to be explicit about it.
For the foreseeable future, I'll be adding entries to this blog each day from Sunday until Wednesday.
Thursday through Saturday, my blogging is confined the Pragmatism Refreshed, a different and less focused venue. cfaille.blogspot.com.
Since Sundays allow lots of time, I expect to create entries for both PR and PP on each Sunday, making me a four-days-a-week presence in each place.
Your comments, of course, are always welcome.
For the foreseeable future, I'll be adding entries to this blog each day from Sunday until Wednesday.
Thursday through Saturday, my blogging is confined the Pragmatism Refreshed, a different and less focused venue. cfaille.blogspot.com.
Since Sundays allow lots of time, I expect to create entries for both PR and PP on each Sunday, making me a four-days-a-week presence in each place.
Your comments, of course, are always welcome.
News Sense
Okay, my news sense isn't always infallible. Sometimes I think I'm on to something big, and it fizzles.
Such is the case with the Microsoft annual meeting held yesterday. There were two shareholder resolutions, and I discussed them in Monday's entry. There's really nothing to say about yesterday's meeting, though, except that all members of the board of directors were re-elected and, as the company management had recommended, both resolutions went down to defeat.
Sometimes I sense a story in the world of academic in-fighting, too. This can work out, but might not.
On Friday, I wrote a story for HedgeWorld (my dayjob) about such an academic dispute, in the world of quantitative finance. I over-state the degree to which I understand such things when I write of them, but hey -- I did take a course in calculus once.
The underlying conflict is between Nassim Taleb and the remaining authors of the famous/infamous Black-Scholes articles concerning the pricing of stock options. Fischer Black, alas, is deceased. The other namesake of the formula, Myron Scholes, is very much alive, as is Robert Merton.
Both Scholes and Merton won a Nobel Prize for their work on Black-Scholes, sometimes more generously called Black-Scholes-Merton. But Nassin Taleb, the author of a couple of widely-read books on risk and its management, says that the formula in the form they offered it, doesn't work very well. Options traders don't use it. Further, he says, it wasn't original enough with them to have their names on it, so it should be called Bachelier-Thorp if referenced any more at al.
I thought this was a big story. I did the usual consacientious reporterly work, wrote up various views of Black-Scholes on the one hand and Taleb's challenge on the other, and my editors posted the result at HedgeWorld.
One of the responses I've had since then has been to the effect that it isn't really newsworthy. Some bitter second-rate fellow envies the Nobel Prize winners and is trying to tear them down: why is that a story? one reader asked me.
All I could say is that arguing over what is newsworthy and what isn't is a mugs game, and I declined to get involved in it. She might be right, and Taleb might simply disappear.
Or, this might be the start of something big, and my readers would have heard of it early on. Damned if I know which is the case.
Such is the case with the Microsoft annual meeting held yesterday. There were two shareholder resolutions, and I discussed them in Monday's entry. There's really nothing to say about yesterday's meeting, though, except that all members of the board of directors were re-elected and, as the company management had recommended, both resolutions went down to defeat.
Sometimes I sense a story in the world of academic in-fighting, too. This can work out, but might not.
On Friday, I wrote a story for HedgeWorld (my dayjob) about such an academic dispute, in the world of quantitative finance. I over-state the degree to which I understand such things when I write of them, but hey -- I did take a course in calculus once.
The underlying conflict is between Nassim Taleb and the remaining authors of the famous/infamous Black-Scholes articles concerning the pricing of stock options. Fischer Black, alas, is deceased. The other namesake of the formula, Myron Scholes, is very much alive, as is Robert Merton.
Both Scholes and Merton won a Nobel Prize for their work on Black-Scholes, sometimes more generously called Black-Scholes-Merton. But Nassin Taleb, the author of a couple of widely-read books on risk and its management, says that the formula in the form they offered it, doesn't work very well. Options traders don't use it. Further, he says, it wasn't original enough with them to have their names on it, so it should be called Bachelier-Thorp if referenced any more at al.
I thought this was a big story. I did the usual consacientious reporterly work, wrote up various views of Black-Scholes on the one hand and Taleb's challenge on the other, and my editors posted the result at HedgeWorld.
One of the responses I've had since then has been to the effect that it isn't really newsworthy. Some bitter second-rate fellow envies the Nobel Prize winners and is trying to tear them down: why is that a story? one reader asked me.
All I could say is that arguing over what is newsworthy and what isn't is a mugs game, and I declined to get involved in it. She might be right, and Taleb might simply disappear.
Or, this might be the start of something big, and my readers would have heard of it early on. Damned if I know which is the case.
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