What's a "scroll compressor"?

Tecumseh Products, a Michigan-based manufacturer of compressors for heat pumps and refrigeration products, especially for the commercial and industrial markets, is seeking to put a chill into a bid for control by the Herrick Foundation. The matter will come to a head at a special meeting on November 21.

The proxy advisory firm Glass Lewis has come to Tecumseh's aid with a report that says among much else: “We see no reason to believe that the replacement of current directors with the [Herrick Foundation] nominees would provide more meaningful returns to shareholders than management’s current strategy.”

Glass Lewis praised the company's improvements in "operational performance," its recent asset sales, and its cost reduction efforts.

This proxy fight has a nearly two-year time line. It was in February 2007 that Herrick informed Tecumseh that it would be nominating three candidates for director. This was a bid for control, since the board has only five seats.

Tecumseh replied by expanding its board to seven seats. After some back-and-forth over the following weeks, the parties reached a one-year standstill agreement in April. This agreement left Herrick with two of the seven seats.

So in the spring of this year, that agreement came to its end and the back-and-forth manuveuring resumed. In April 2008, the Tecumseh board amended the company by-laws to make it very difficult for shareholders to call a special meeting. Herrick sued.

In August,the circuit court in Lenawee County, Michigan, ordered a special meeting for November 21. The purpose of the meeting is to consider the removal of two directors and the election of new directors to fill the vacancy if removal is approved. The two directors that Herrick has targeted for removal are Tecumseh's longest-serving directors, Peter M. Banks and David M. Risley.

Obviously, if Herrick manages to replace Messrs Banks and Risley with two directors more favorable to itself, its share of the seven member board rises from two seats to a majority four.

An intriguing but rather isolated line in Herrick's proxy materials says, "The industry trend is toward the use of scroll compressors, which competitors have had for some time, but Tecumseh is in the early stages of offering."

What's a scroll compressor and how does it differ from the sort of thing Tecumseh does offer? A homework assignment!

Rousseau's deal with Noront

A considerate reader has answered a question I asked in mid-October.

I observed, on October 13, that the hedge fund Rousseau Asset Management was challenging the incumbent board at Noront Resources Ltd. and I wondered aloud what was the inspiration for the fund's name? the painter? the Enlightenment philosopher?

So today I make an overdue acknowledgement of reader "Rosedale," who told me (on October 28, the very day on which the meeting was scheduled) that RAM is named after Canada's Lake Rousseau, where the fund's manager, Warren Irwin, has his boat.

Noted. Now ... what happened about the proxy fight?

The day before the meeting, October 27, Noront and Rousseau settled their differences. Noront's president, Richard Nemis, agreed to step down as Prez and to become instead "chairman emeritus" and "special advisor" to the board.

The office of president is now occupied by two men, Joseph Hamilton and Paul Parisotto, as a team. But they are doingso only on an "interim basis" while theboard looks for someone to take the job on permanently.

As to the question of who is to sit on the board (which is after all at least the headliner issue in most proxy fights), the two sides worked out an elaborate ballet. They jointly recommended the election of three nominees from the incubent board and four nominees from the challenge slate. So they have a seven seat board, right? Wrong.

Immediately after the election, by agreement, one of he nominees from the challenge slate and two of the nominees from the former incumbent slate resigned as directors. The challenge-slate resignee, Michael Woollcombe, was not replaced. But the two incumbent resignees, Maurice Stekel and John Blancheflower, were immediately replaced by two appointees nobody had nominated.

So the company now has a six-seat board of directors. One of these was a member of the previous board, three were from the challenge slate, and two are agreed-upon appointees from either.

Curious. And as theatrical in its own way as any drama ever barred from the City of Geneva.

Cliffs meeting re-scheduled

The Cleveland, Ohio based mining company, Cliffs Natural Resources, has rescheduled its special shareholder meeting, called to approve its proposed merger with Alpha Natural Resources.

The company was known as Cleveland-Cliffs until last month, and it had planned to hold the special meeting on November 21.

Now they have set a new date -- almost a month later. The meeting will take place December 19, with a "record date" of November 19.

Ohio statutes require a supermajority of shareholders to approve of such a merger, so opponents can block this deal with 35%. Such opposition does exist, as those who've been following the matter along with me know.

My reading of the delay is that the management at Cliffs knows they don't yet have the votes to push this through. But they think they can persuade some of the dissidents to vote their way given the extra month they've now given themselves.

Alpha is unhappy. It has brought a lawsuit in Delaware seeking to obtain an order invalidating this re-scheduling. What gives there? Does Alpha want to push the deal through quickly? or do they want to kill the deal by holding the vote befoe any of the dissidents can be persuaded to change their views? (Seller's remorse?)

Election Day thoughts

First, I hope for my own sake and that of my fellow countrymen and women that the decision today isn't especially close so we don't end up spending the next two months debating about hanging chads, butterfly ballots, disputed absentee ballots from military bases, or whatnot.

It appears, from what little we know so far (I'm writing a little after 9:30 AM in the east) that this will not be the case. Senator Obama seems likely to end the night with a mandate.

I'm not especially trusting of polls, but I do have a high opinion of the efficacy of prediction markets such as this one. Intrade is showing as I write that you have to pay more than 91 cents for a chance to win a dollar on the bet that Obama will become President. You can buy onto McCain's Straight Talk bandwagon for just 9 cents. It is petty clear what that means.

In terms of economic/financial policy, I suspect a Prsident Obama would go along with the rising call in Europe and East Asia for a new Bretton Woods-style conference to develop a global system for the co-ordination of monetary policies, exchange rates, etc. What would come out of such a conference? One likely result would be the formalization of a new role for the Chinese yuan as the central pillar in this new system. It is the only currency that could possibly hold the position that the US dollar once did.

That's an index of the size of the changes underway and the changes to come.

Penn National Gaming

Penn National Gaming owns and operates gambling facilities, (including racetracks) -- operating in 14 of the states of the US and in the province of Ontario.

Just last week it issued 12,500 shares of preferred stock to raise $1.25 billion. It had to raise that money in order to get out of a contract to be acquired by Fortress Investment Group and Centerbridge Partners -- a deal that was drawn up in the summer of 2007, and thereafter unravelled as have so many others during this credit crunch.

PNG holds its annual stockholders meeting on November 12. The management will ask stockholders to approve its long-term incentive compensation plan. There will be some opposition to this.

Indeed, at last year's meeting stockholders voted against a similar plan, which as this year involved seeting aside a substantial chunk of the issued equity for awards of various sorts to both employee and non-employee directors. One of the proxy advisory groups, Proxy Governance, has said that that vote reflected "a level of shareholder opposition infrequently seen."

This year the board's compensation committee is saying, in effect, "if the shareholders don't approve this set-aside, we'll just have to incraese the honchos' compensation with larger cash salaries."

As threats go, that's pretty lame. If shareholders are ticked off at management, they'll express this in the manner available to them.

Proxy Governance's report also makes the case that the compensation to these honchos is already high relative to the compensation of directors in comparable firms.

Personally, I'll be pulling for another rebellion in the ranks this year.

Target and the proposed REIT

Target's shares (NYSE: TGT) fell 6% on Thursday, AFTER bill Ackman announced his plan to enhance the value of Target's equity through a REIT spinoff.

It seemed safe to conclude the market doesn't like his plan. But then, the stock gained most of that value back on Friday. So one might have to re-think this.

I'll attaching a stock chart for last week. Target's price moves are the blue line, compared here to those of the DJIA, in yellow.

Target seems to have risen Tuesday and Wednesday. The DJIA too was rising Tuesday, but was flat on Wednesday. We can infer, I think, that traders were "buying on the rumor" as the old adage has it. They were buying on the expectation that Ackman would present a plan, even without knowing what the plan was.

What's the other half of that aage? "Buy on the rumor, sell on the fact." My own best guess is that when Ackman publicly announced his plan, whatever it was, there was bound to be some decline.

then on Friday, with the twin requirements of that adage satisfied, did the market finally express its considered opinion of the plan? If so, the plan is good, but not a Wowser! kind of good. The price rose Friday, but so did the DJIA as a whole, and the Target rise was only slightly greater than the Dow's.

I'm in a lazy Sunday kind of mood so I've let the market do my thinking for me. Here's a link to those ho want to read some less lazy blogging on this issue.

Update on the Pershing Square story

Yes, as he promised, Pershing Square's principal Bill Ackman did explain his plan to improve the value of the equity of Target Corp. today.

He said that the company should spin off a separate entity that will own the land on which its stores are built, then lease the land from its corporate offspring for a period of 75 years.

Target responded non-committally. It is reviewing the plan, but it has "serious concerns on a number of important issues."

It sounds like sleight-of-hand to me, but I'll give myself three days to mull it over. Catch you folks here Sunday.