1. Conrad Black
A district court judge sentenced Conrad Black yesterday to 6 and a half years in prison, a forfeiture of $6.7 million, and an insult-to-injury fine of $140,000.
The sentencing judge, Amy St. Eve, said: "I personally cannot understand how someone of your stature, at the top of the media empire, could engage in the conduct you engaged in and put everything at risk."
Her sentence seems, IMHO, rather more harsh than was warranted. I suspect she saw a chance to make an example of him, precisely because of that "stature" she was talking about.
In his heyday, Black was running the third-largest publishing company in the world. He ran it as a personal feifdom, too, and he has been convicted of, and now sentenced for, the intermingling of corporate and business funds -- i.e. for theft. I don't excuse that, of course, but I do suspect the Hon. St. Eve got carried away a bit by the fact that this was her own moment in the spotlight.
2. H&R Block
Regular readers of this blog learned on November 21 that the leadership of H&R Block has changed, due to a successful proxy contest.
The morning after a victory is time for the "what do we do now" feeling, expressed so vividly by Robert Redford in an old movie. H&R Block said this morning that it's delaying the filing of its second quarter results. The 2d quarter of Block's fiscal year ended October 31, and it had previously scheduled an analyst conference call for today at which it was to discuss the numbers.
The numbers aren't ready, and the call won't take place. As a preliminary matter, Block is now saying that the 2d quarter figures when thet are available will be worse than had previously been expected.
The market's initial reaction to Breeden's takeover last month was favorable. The stock price rose to a high of $20.48. But, probably in anticipation of bad news today, the price fell Friday and Monday.
My guess, then, (and its only a guess) is that the market has already discounted the bad news, and that the price will hold steady today.
3. EDO Corp meeting
Two proxy advisory firms recommended yesterday that stockholders in EDO cast their votes in favor of a merger with IT&T, recommended by the management.
The special stockholder's meeting for this purpose is scheduled for a week from today, Dec. 18.
Both ISS and Glass Lewis have now concluded that EDO's stockholder's are getting a fair deal from the proposed terms, $56 per share in cash.
Tuesday, December 11, 2007
Monday, December 10, 2007
Ramius, Datascope, blank checks
The hedge fund Ramius Capital seeks to put two new faces on the board of directors of Datascope, a medical device manufacturer based in Montvale, New Jersey. Stockholders will vote on these two seats at a December 20 meeting.
Datascope has conducted a series of internal investigations this year and five of the company's top executives have left. It is natural to suspect that the former led to the latter, that "where there's smoke...." And if there isn't any fire, there's been a considerable waste of money in calling out the bucket brigade -- Datascope spent$1.7 million on legal expenses relating to those investigations.
Ramius said in a statement that it hopes the "election contest will send a strong message to the remaining incumbent directors that stockholders are not satisfied with the company's corporate governance and management."
Such troubles might in some circumstances put a company "in play" as a takeover target. But Datascope has the sort of "poison pill" provision I discussed here last week, and that is part of what Ramius objects to in their own proxy campaign. It also entrenches itself through other means, notably through the ability of the Datascope board to issue "Blank Check" preferred stock. This is, like poison pills, a fairly common means of entrenching the incumbents against the threat of acquisition, and a proxy fight is useful as a means of lowering these barriers, empowering a potential acquirer.
I believe this is the first time I've used that phrase "blank check" in this still-new blog. The idea is that a board allowed to make such issuances by its charter or by-laws can issue such stock to a friendly party or "white knight" in the event that a black-suited knight, an unfriendly acquirer, appears. Depending on the conversion rights that go with the preferred stock, it can have the effect of diluting the acquirer's holdings, making the acquisition more expensive and/or less attractive.
Boards commonly argue that the authority to issue such "blank check" stock is good for the company because of the increased flexibility it gives the board in the pursuit of financing. But fiduciaries are wary of it.
On the website of American Century Investment Management, for example, you'll find an explanation of that asset management firm's proxy voting policies that includes the following:
"Generally, the Adviser will vote against blank check preferred stock. However, the Adviser may vote in favor of blank check preferred if the proxy statement discloses that such stock is limited to use for a specific, proper corporate objective as a financing instrument."
Datascope's board has seven members, so even if both the dissident nominees are elected -- and they express such wariness in boardroom deliberations -- they may well end up being a minority voice in such matters. Still, I suppose that the issuance of blank check stock by a 5 to 2 vote might itself serve as a red flag.
Datascope has conducted a series of internal investigations this year and five of the company's top executives have left. It is natural to suspect that the former led to the latter, that "where there's smoke...." And if there isn't any fire, there's been a considerable waste of money in calling out the bucket brigade -- Datascope spent$1.7 million on legal expenses relating to those investigations.
Ramius said in a statement that it hopes the "election contest will send a strong message to the remaining incumbent directors that stockholders are not satisfied with the company's corporate governance and management."
Such troubles might in some circumstances put a company "in play" as a takeover target. But Datascope has the sort of "poison pill" provision I discussed here last week, and that is part of what Ramius objects to in their own proxy campaign. It also entrenches itself through other means, notably through the ability of the Datascope board to issue "Blank Check" preferred stock. This is, like poison pills, a fairly common means of entrenching the incumbents against the threat of acquisition, and a proxy fight is useful as a means of lowering these barriers, empowering a potential acquirer.
I believe this is the first time I've used that phrase "blank check" in this still-new blog. The idea is that a board allowed to make such issuances by its charter or by-laws can issue such stock to a friendly party or "white knight" in the event that a black-suited knight, an unfriendly acquirer, appears. Depending on the conversion rights that go with the preferred stock, it can have the effect of diluting the acquirer's holdings, making the acquisition more expensive and/or less attractive.
Boards commonly argue that the authority to issue such "blank check" stock is good for the company because of the increased flexibility it gives the board in the pursuit of financing. But fiduciaries are wary of it.
On the website of American Century Investment Management, for example, you'll find an explanation of that asset management firm's proxy voting policies that includes the following:
"Generally, the Adviser will vote against blank check preferred stock. However, the Adviser may vote in favor of blank check preferred if the proxy statement discloses that such stock is limited to use for a specific, proper corporate objective as a financing instrument."
Datascope's board has seven members, so even if both the dissident nominees are elected -- and they express such wariness in boardroom deliberations -- they may well end up being a minority voice in such matters. Still, I suppose that the issuance of blank check stock by a 5 to 2 vote might itself serve as a red flag.
Sunday, December 9, 2007
60 Minutes
I understand that this evening, a new medicine intended to help people in recovery from mthamphetamine addiction with make the ultimate media splash for such a product. It will be featured on a segment of the CBS News program "60 Minutes."
The drug is called Prometa, and the company benefitting from the publicity splash is Hythiam Inc.
I'm mentioning it only to give my readers the benefit of a quick warning. Look before you leap. When news like this hits, there's a temptation to want to jump on the train. But the market may have alrady discounted the potential market value of this particular locomotive. Surely the recent dramatic run-up in its stock price suggests as much. It suggests that there's no bargain to be had here by jumping on the caboose.
More generally, for most people in most circumstances, my own bias is that "stock picking" is an expensive avocation. Stick to broad indexes -- the more passively managed the better.
And, of course, don't take seriously any advice on investing you get on internet blogs. Though I'm happy to imagine you've at least read all the way through this bit of it.
The drug is called Prometa, and the company benefitting from the publicity splash is Hythiam Inc.
I'm mentioning it only to give my readers the benefit of a quick warning. Look before you leap. When news like this hits, there's a temptation to want to jump on the train. But the market may have alrady discounted the potential market value of this particular locomotive. Surely the recent dramatic run-up in its stock price suggests as much. It suggests that there's no bargain to be had here by jumping on the caboose.
More generally, for most people in most circumstances, my own bias is that "stock picking" is an expensive avocation. Stick to broad indexes -- the more passively managed the better.
And, of course, don't take seriously any advice on investing you get on internet blogs. Though I'm happy to imagine you've at least read all the way through this bit of it.
Wednesday, December 5, 2007
Brog out of Gyrodyne contest?
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?
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?
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.
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