Cleveland-Cliffs, the Ohio-based operator of iron ore mines, announced Friday that its shareholders have voted decisively against a proposal by hedge fund Harbinger Capital -- a proposal that might have allowed Harbinger to block Cleveland-Cliffs' planned acquisitionof Alpha Natural Resources.
Harbinger requested approval from the other shareholders to increase its stake in the company from 15.57% to 33%. Ohio law requires such approval when one party passes the 20% threshold.
In a statement Friday, Cliffs' chairman Joseph Carrabba said that he was pleased that the non-Harbinger shareholders "voted to retain their right to provide meaningful input on the future strategic decisions of the Company."
The management victory is a time to reflect on a point sometimes neglected in popularizing accounts of the US based M&A world. It isn't all Delaware. Delaware obviously is of great importance, but there are major corporations that have chosen to charter themselves in other states, due in large part to the differences in the pertinent laws.
Ohio's statute in particular -- aimed overtly at protecting Ohio-based companies from unfriendly takeover -- made news back in 2003, when Northrop Grumman managed to overcome such obstacles and acquire the local company TRW. Ohio's response? -- to raise to bar again, by adding an anti-arb provision.
I would imagine that Ohio's statutes have been challenged in federal court at some point on the theory that they burden interstate commerce, thereby violating the "dormant" exercise of Congress' constitutional power in that area.
Commerce in the sense of the "dormant commerce clause doctrine" has generally meant something more tangible -- the act of moving objects into one state from another for sale there. But what about the handicapping of out-of-state investors in the way Ohio seems to have in mind? My suspicion (unconfirmed by any actual research into the question) is that challenges have been launched on this point, and they have failed.
If any of my alert readers know of litigation on this constitutional point, I'd be happy to hear of it. Thanks.
Monday, October 6, 2008
Sunday, October 5, 2008
Shorting Financial Stocks: Back in Town
In the middle of September, the SEC issued an emergency order, originally designed only to last two weeks, that banned all short-selling in the stock of financial services companies.
All short selling. This wasn't an order aimed at the "abuse" of short selling in one way or another. It prohibited the practice as a whole.
Two weeks later, the SEC extended that order until October 17 -- the end of the full 30 day period allowed for its "emergency" decrees under statute.
Fortunately (for those of us who think the ban was a stupid idea in the first place) the extension contained something of a loophole. The ban was re-jiggered to end at the earlier of two events: the expiration of the 30 days, or the passage of three business days from enactment of the Wall Street bail-out bill.
That bill -- another really stupid idea, but let that pass for now -- became law with the President's signature on Friday. Thus, the brief backbencher's revolt that had broken out Monday proved a cheering but brief incident.
Anyway, with the bail-out bill signed, the emergency order will expire Wednesday. Authentic price discovery is back. A small silver lining to the cloud of dumb political and bad financial news in recent days and weeks.
All short selling. This wasn't an order aimed at the "abuse" of short selling in one way or another. It prohibited the practice as a whole.
Two weeks later, the SEC extended that order until October 17 -- the end of the full 30 day period allowed for its "emergency" decrees under statute.
Fortunately (for those of us who think the ban was a stupid idea in the first place) the extension contained something of a loophole. The ban was re-jiggered to end at the earlier of two events: the expiration of the 30 days, or the passage of three business days from enactment of the Wall Street bail-out bill.
That bill -- another really stupid idea, but let that pass for now -- became law with the President's signature on Friday. Thus, the brief backbencher's revolt that had broken out Monday proved a cheering but brief incident.
Anyway, with the bail-out bill signed, the emergency order will expire Wednesday. Authentic price discovery is back. A small silver lining to the cloud of dumb political and bad financial news in recent days and weeks.
Wednesday, October 1, 2008
Three brief items
1. The credit crunch is having a predictable impact on merger and acquisition activity.
Still, a deal is a deal. Parties ought to be deterred from simply walking away when performance of their agreed-upon obligations has become onerous.
Vice Chancellor Stephen Lamb of the Delaware Chancery Court has refused to let Hexion Specialty Chemicals abandon its $6.5 billion buyout of Huntsman Corp.
Lamb's ruling came down Monday. "We are reviewing the decision and our options," said Hexion in a statement.
2. Ciena Capital has sought the protection of the bankruptcy courts. Ciena, a real estate lender, is 95% owned by Allied Capital, the bête noire of famed short seller David Einhorn.
Indeed, Einhorn wrote a book last year chiefly devoted to venting his frustrations at short selling Allied. He had begun making a public case for short selling, on the basus of the illiquidity of its portfolio, in the spring of 2002. Here's a link to an informative review of that book subscription required but free.
Short selling is all about timing. If you take a short position, you're betting not just that the stock will fall sometime, but that it will fall within the framework needed to make that position pay off. Einhorn's position in Allied over the period discussed inhis book was no diaster, but it proved no bonanza either.
No matter how badly the bankruptcy of Ciena may hurt Allied, then, it comes rather too late to vindicate views asserted in 2002. Though, let it be noted, Allied Capital stocks fell 14% yesterday, as general market indexes were rising.
3. Maurice Greenberg. A few days ago I would have saids that "Hank" Greenberg had given up on playing a continuing role at his old company, AIG.
He had filed a statement on September 25, after all, to the effect that he and entities under his control are selling 40 million shares of AIG stock. They took a big loss in doing so, too.
But AIG is being effectively nationalized, and its new Washingtonian masters want it to sell off assets.
This has created an opening for Greenberg to play a different sort of role. No longer as boss, no longer as quite so large a shareholder. But now he shows up as ... willing buyer.
Meanwhile the revolving door in from of the CEO office at AIG continues to twril. Greenberg sent his letter asking to be allowed to bid on the assets to ... Edward Libby. Who has been CEO for all of two weeks.
Still, a deal is a deal. Parties ought to be deterred from simply walking away when performance of their agreed-upon obligations has become onerous.
Vice Chancellor Stephen Lamb of the Delaware Chancery Court has refused to let Hexion Specialty Chemicals abandon its $6.5 billion buyout of Huntsman Corp.
Lamb's ruling came down Monday. "We are reviewing the decision and our options," said Hexion in a statement.
2. Ciena Capital has sought the protection of the bankruptcy courts. Ciena, a real estate lender, is 95% owned by Allied Capital, the bête noire of famed short seller David Einhorn.
Indeed, Einhorn wrote a book last year chiefly devoted to venting his frustrations at short selling Allied. He had begun making a public case for short selling, on the basus of the illiquidity of its portfolio, in the spring of 2002. Here's a link to an informative review of that book subscription required but free.
Short selling is all about timing. If you take a short position, you're betting not just that the stock will fall sometime, but that it will fall within the framework needed to make that position pay off. Einhorn's position in Allied over the period discussed inhis book was no diaster, but it proved no bonanza either.
No matter how badly the bankruptcy of Ciena may hurt Allied, then, it comes rather too late to vindicate views asserted in 2002. Though, let it be noted, Allied Capital stocks fell 14% yesterday, as general market indexes were rising.
3. Maurice Greenberg. A few days ago I would have saids that "Hank" Greenberg had given up on playing a continuing role at his old company, AIG.
He had filed a statement on September 25, after all, to the effect that he and entities under his control are selling 40 million shares of AIG stock. They took a big loss in doing so, too.
But AIG is being effectively nationalized, and its new Washingtonian masters want it to sell off assets.
This has created an opening for Greenberg to play a different sort of role. No longer as boss, no longer as quite so large a shareholder. But now he shows up as ... willing buyer.
Meanwhile the revolving door in from of the CEO office at AIG continues to twril. Greenberg sent his letter asking to be allowed to bid on the assets to ... Edward Libby. Who has been CEO for all of two weeks.
Tuesday, September 30, 2008
A victory for the backbenchers
The President seems ticked off chiefly that negotiating with "the leadership" isn't enough, that the backbenchers in each party acted yesterday as if they have minds, and constituents, of their own.
Mr. Bush's address this morning, at 8:45, began as follows: "Yesterday, the House of Representatives voted on a financial rescue plan that had been negotiated by Congressional leaders of both parties and my administration. Unfortunately, the measure was defeated by a narrow margin. I'm disappointed by the outcome, but I assure our citizens and citizens around the world that this is not the end of the legislative process."
It "had been negotiated." It was, you see, a done deal. Then those darned non-leaders got in the way.
Personally, I'm happy for its loss. It represented a lousy deal. The key for any revised plan ought to be a debt-for-equity swap, bringing in the bondholders of the major financial institutions as the holders of equity in the re-organized entities.
This thought is hardly an idiosyncracy of my own. A lot of people are making the debt-for-equity point, but no one within the beltway seems yet to have listened.
Sometimes you can't get things right until you break what is wrong. The backbenchers broke something wrong yesterday. Bully for them.
Mr. Bush's address this morning, at 8:45, began as follows: "Yesterday, the House of Representatives voted on a financial rescue plan that had been negotiated by Congressional leaders of both parties and my administration. Unfortunately, the measure was defeated by a narrow margin. I'm disappointed by the outcome, but I assure our citizens and citizens around the world that this is not the end of the legislative process."
It "had been negotiated." It was, you see, a done deal. Then those darned non-leaders got in the way.
Personally, I'm happy for its loss. It represented a lousy deal. The key for any revised plan ought to be a debt-for-equity swap, bringing in the bondholders of the major financial institutions as the holders of equity in the re-organized entities.
This thought is hardly an idiosyncracy of my own. A lot of people are making the debt-for-equity point, but no one within the beltway seems yet to have listened.
Sometimes you can't get things right until you break what is wrong. The backbenchers broke something wrong yesterday. Bully for them.
Monday, September 29, 2008
Asian markets not impressed
One theme of the news coverage this last weekend of the frenetic negotiations in Washington over the details of a Wall Street bail-out plan was this: they had to get a deal n place before the Asian markets opened, Monday morning in Hong Kong and Tokyo, or Sunday evening in Washington. It was crucial to send a message to the investors in those markets.
Upon waking this morning, we can check -- those investors weren't impressed.
The bottom line of today's HK trading, as measured by the Hang Seng index, is a drop of 669.13 points to 18,012.96. In Tokyo, the Nikkei closed 149.55 down at 11,743.61. In Singapore shares fell 32.45 to 2,379.01.
If there had been no deal, the administration and do-something-quick allies would have cited these numbers as proof of how disastrous waiting is.
But there is a deal, so these numbers will of course be spun as proof that the markets need immediate follow-through.
Follow the sun. What's the story with the Euro markets? In Germany, the DAX is down. In France, the CAC-40 is down. In London, the FTSE is down. Gee, this deal doesn't seemed to have worked any market magic after all, has it?
I'm not saying nuttin'....
Upon waking this morning, we can check -- those investors weren't impressed.
The bottom line of today's HK trading, as measured by the Hang Seng index, is a drop of 669.13 points to 18,012.96. In Tokyo, the Nikkei closed 149.55 down at 11,743.61. In Singapore shares fell 32.45 to 2,379.01.
If there had been no deal, the administration and do-something-quick allies would have cited these numbers as proof of how disastrous waiting is.
But there is a deal, so these numbers will of course be spun as proof that the markets need immediate follow-through.
Follow the sun. What's the story with the Euro markets? In Germany, the DAX is down. In France, the CAC-40 is down. In London, the FTSE is down. Gee, this deal doesn't seemed to have worked any market magic after all, has it?
I'm not saying nuttin'....
Sunday, September 28, 2008
Dillard's
Barington Capital Group LP and Clinton Group Inc. have joined forces to urge a change in the share structure of Dillard's Inc., a mall-based retailing company.
The two activist investors filed a letter with the SEC last week asking the board of Dillard's to remove its dual share structure, which as things stand keeps in the hands of class B shareholders the right to elect two thirs of the board.
The existing management group owns W.D. Co., which in turn owns about 99.4% of class B shares.
My first thought when hearing of such a situation is that there is something to be said for the principle of "caveat emptor" in the ownership of shares of stock,, though. Anyone who bought any shares in Dillard's should have done the research in advance necessary to understand that the management maintains this sort of lock on control. If they have done that homework, then one would expect the price of class A stock would sell at a discount that reflects the limited significance of the vote that comes with it.
But the first thought is not always the best thought. One might also consider that operationally, same store sales have fallen over the past year. Maybe the management is doing itself as shareholders a service by locking things up so tightly. Maybe a shake-up in control could have effects on the sales numbers.
Anyway, the two hedge funds togerther own 5.67% of that class A stock. Their letter asks for a committee of independent directors to be formed to consider their proposal.
The two activist investors filed a letter with the SEC last week asking the board of Dillard's to remove its dual share structure, which as things stand keeps in the hands of class B shareholders the right to elect two thirs of the board.
The existing management group owns W.D. Co., which in turn owns about 99.4% of class B shares.
My first thought when hearing of such a situation is that there is something to be said for the principle of "caveat emptor" in the ownership of shares of stock,, though. Anyone who bought any shares in Dillard's should have done the research in advance necessary to understand that the management maintains this sort of lock on control. If they have done that homework, then one would expect the price of class A stock would sell at a discount that reflects the limited significance of the vote that comes with it.
But the first thought is not always the best thought. One might also consider that operationally, same store sales have fallen over the past year. Maybe the management is doing itself as shareholders a service by locking things up so tightly. Maybe a shake-up in control could have effects on the sales numbers.
Anyway, the two hedge funds togerther own 5.67% of that class A stock. Their letter asks for a committee of independent directors to be formed to consider their proposal.
Wednesday, September 24, 2008
New board for InSite
InSite Vision Inc. is a developer of eye-care related products, based in California and chartered in Delaware.
It held its annual meeting Monday. At that time, shareholders had the opportunity to vote on a chalenge slate -- six nominees for the InSite board put forward by a venture capital firm, PTV Sciences. Six seats constitutes the whole of the board.
Yesterday, in a press release, InSite acknowledged based on prelim figures that PTV appears to have won. "It is time for management and the new Board to focus on the road ahead and work together to transform the company into a successful, multiple-product organization," said the good sports.
PTV has claimed that InSite hasn't delivered on the profit potential of its products, especially in light of its $5.8 million loss in the second quarter of this year.
InSite is perhaps best known for the eye-infection treatment AzaSite, which contains azithromycin. Insite scored something of a coup in early 2007 when it concluded a patent-licensing deal with Pfizer, becoming the licensee of all Pfizer's azithromycin related patents.
Back in those balmy days, the company's stock was selling for $1.50 a share. But investors have a habit of askling, "what have you done for me lately," and the stock has been sliding since last summer. These days it trades around $0.50.
Hence the new board.
It held its annual meeting Monday. At that time, shareholders had the opportunity to vote on a chalenge slate -- six nominees for the InSite board put forward by a venture capital firm, PTV Sciences. Six seats constitutes the whole of the board.
Yesterday, in a press release, InSite acknowledged based on prelim figures that PTV appears to have won. "It is time for management and the new Board to focus on the road ahead and work together to transform the company into a successful, multiple-product organization," said the good sports.
PTV has claimed that InSite hasn't delivered on the profit potential of its products, especially in light of its $5.8 million loss in the second quarter of this year.
InSite is perhaps best known for the eye-infection treatment AzaSite, which contains azithromycin. Insite scored something of a coup in early 2007 when it concluded a patent-licensing deal with Pfizer, becoming the licensee of all Pfizer's azithromycin related patents.
Back in those balmy days, the company's stock was selling for $1.50 a share. But investors have a habit of askling, "what have you done for me lately," and the stock has been sliding since last summer. These days it trades around $0.50.
Hence the new board.
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