Handling an Activist Attack

My friend and colleague Moira Conlon, President of Financial Profiles, was keynote speaker at a recent National Association of Corporate Directors event addressing steps that public companies should take to be prepared for activist shareholder attacks.

Click here to take you to the article or copy and paste the link below into your browser”

http://finprofiles.wordpress.com/2013/03/19/are-you-prepared-for-an-activist-attack/

 

Fight or Settle – “Say on Pay” Suits

By Dennis McCarthy – (213) 222-8260 – dennis@mbsecurities.com – 

If public company executives didn’t already have enough to deal with, now there’s one more item.

Corporate Counsel magazine reports a significant rise in lawsuits by plaintiff’s attorneys claiming inadequate disclosure in company’s “say on pay” proxy disclosure.

These “say on pay” lawsuits are filed by the same law firms which show up filing suit claiming M&A proxy disclosure is inadequate.

These suits also follow the pattern of M&A litigation in which plaintiffs seek an injunction to prevent a shareholder vote.

To date, most companies have chosen to settle these “say on pay” suits requiring the companies to revise their proxy materials plus pay several hundred thousand dollars to plaintiff’s attorneys.

So far, the absolute number of these “say on pay” lawsuits is small but unless companies choose to fight them, I suspect the number will grow.

I’ve attached a link to the Corporate Counsel magazine article which itself has links to several helpful sources.

As always, please contact me to help your company with any capital market transaction.

Link to the article or paste this:

http://www.law.com/corporatecounsel/PubArticleCC.jsp?id=1202590630080

My friend and colleague, Roger Zickfeld at Columbia Capital sent me an additional article from CFO Magazine which provides more color on the topic (Link)

Katten Muchin Rosenman also prepared a valuable background slide deck (link).  


Google

Zombie Shares

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

Well, “zombie shares” caught my eye.  I clicked on the article in the online magazine “Growth Capitalist” to find out just what are “zombie shares”.

Zombies, as I understand it, are the dead reanimated and controlled by someone through witchcraft.  Zombies move and react to their surroundings like they are alive but, in reality, they are not.

So, I presume that, “zombie shares” are shares of stock that look like normal shares but, in reality, are different.  In the example that follows, you’ll see that “zombie shares” may look like they’re still outstanding and held by the shareholder of record but, in reality, they are not.

In the “Growth Capitalist” article, the “zombie shares” are shares that have effectively been repurchased by and now voted by the issuing company but are left outstanding in the hands of the prior owner to permit the shares to be counted in shareholder votes. So, they’re “zombie shares”.

I mentioned something like this in prior posts on M&A defense such as “M&A Defense Checklist”.  In that context, however, a hostile investor would obtain effective voting control or effective ownership without tripping the definition of ownership to trigger a “poison pill” or 13(d) disclosure.  A hostile party, therefore, could control many more shares than its visible ownership would indicate.

At the time I posted, “M&A Defense Checklist”, I didn’t have a cool name like “zombie shares”.

The link to the article at “Growth Capitalist” is below.  Thanks to them for adding this colorful name.

As always, please contact me to assist your company to raise equity or debt or to complete M&A projects.

Article: http://www.growthcapitalist.com/2012/07/zombie-shares-race-to-bottom-at-issue-in-emmis-take-private-plan/

Corporate Proxy Videos

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

As a follow-up to my recent posts on the 2012 proxy season entitled, “Silent Majority Speaks” and “Just a Small Leak“, I’d like to pass along to you a website that provides valuable information about corporate proxies.

This website, I’m pleased to report, will not likely cause your eyes to glaze over with boredom.

Created by Equilar, the compensation consulting company that I’ve mentioned in prior posts, this website presents short and informative videos on corporate proxy issues.

I’ve listed the website below for your review.  Let me know what you think.

As always, please call me to help your company with raising equity or debt or to complete M&A projects.

Equilar website:  http://www.equilar.com/knowledge-network/episode-8.php

Corporate Proxy Video

Corporate Proxy Video

Silent Majority Speaks

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

Link to New York Times article: http://dealbook.nytimes.com/2012/06/07/once-reticent-investors-join-shareholder-revolts/?emc=eta1

At the end of my last post “Just a Small Leak”, I posed the question whether we could discern a visible trend in shareholder activism or were we simply seeing an isolated incident in the situation I reported.

No sooner did I hit the post button than I found an article with another interesting data point.

This article reports several instances in which typically complacent institutional investors had become vocal, and with great impact.

To quote the article, “When traditionally quieter investors join the chorus, it resonates so much more.” [Dominic J. Auld, a lawyer  at Labaton Sucharow who represents institutional investors]

There are likely several catalysts for turning typically silent shareholders into vocal ones including:

(i)    the role played by Proxy Advisory firms as I described in my post “Herding Cats”,

(ii)   weak stock price performance and

(iii) occasional outrageous corporate behavior which gets wide news coverage.

You can click on the link to find the article entitled, “Once-Reticent Investors Join Shareholder Revolts” by The New York Times “DealBook”.

Please subscribe to my blog, capitalmarketalerts.com, to stay informed on these and other capital markets topics. 

And please contact me to help your company with M&A activities and raising equity or debt.

Just a Small Leak

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

In my post entitled, “Potential Trojan Horse?”, I described a battle being waged by a small band of M&A specialists over the “advance notice bylaw and proxy access rules”.

These corporate provisions specify how shareholders can influence their corporations on selecting board members and determining many critical M&A, corporate governance and management compensation decisions.

Proxy access rules may not have a catchy name like “poison pill”, but believe me, they’re important.

Here’s some background. In a battle waged last summer, the SEC’s proposed proxy access rules for shareholder participation were stopped in court.

What was left in place, maybe because its threat was underestimated, was the ability of shareholders to submit their own proxy access rules to a vote of shareholders.

I suggested that leaving in place this provision for shareholders to submit their own proxy access rule proposal was something of a Trojan horse that might surprise corporate boards with their vulnerability. 

So it caught my eye when I read that shareholders of Nabors Industries, a $6 billion New York Stock Exchange company, had approved a proxy access proposal on June 5th, the first instance of shareholders approving proxy access rules, to my knowledge.

The proposal was submitted by several large New York City pension funds and supported by pension funds from other states.

Interestingly, the proposal approved by Nabors’ shareholders contained several of the same elements that were in the SEC’s proposed proxy access rule struck down by the court last summer.

Now, the Nabors’ proposal was non-binding on the Nabors’ Board but it signals to me increasing shareholder activism and shareholders’ determination to have a voice in corporate decision-making.

What do you think?  Will this be an isolated case or does it signal a trend?

Please subscribe to my blog, capitalmarketalerts.com, to stay up to date on this and other critical capital markets issues.  Also, please contact me to help your company to raise equity or debt or to complete M&A deals.

2012 Proxy Season – Initial Results

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

Webinar Linkhttp://www.equilar.com/webinar/2012-proxy-trends/archive.html

My recent post, entitled “Herding Cats” described proxy advisors as a powerful new voice for investors especially at proxy season.

Today’s post offers an initial recap of the 2012 proxy season:

what were the key issues on which proxy advisors played a role;

what were the companies’ responses; and  

what were the vote results?

Latham & Watkins, a law firm, and Equilar, executive compensation consultants, produced a valuable webinar covering these topics. The link is below.

The key issue this proxy season was “pay for performance”. 

Executive compensation, in general, is likely to be a hot button issue for several years so I recommend listening to the Latham and Equilar webinar.

Please subscribe to my blog to stay informed of these and other capital markets developments. 

Please call me to help your company to raise equity or debt or to complete M&A projects. Thank you. 

Shareholder Vote

Shareholder Vote

Proxy Advisory Firms – “Herding Cats”

dennismccarthy@ariesmgmt.com – (213) 222-8260

When someone describes a very difficult task, they often liken it to herding cats.

Each cat moves in its own direction, confident in its path and independent, maybe even suspicious, of others around it.  This is why herding cats in one direction is so difficult.

Another group that shares these characteristics are Wall Street investors.  It’s Wall Street investors’ independent perspectives on the stock market that makes the market.  At any moment, some are buyers and some sellers.

This is why it is so impressive that the firms, known as proxy advisory firms, have managed to gain such influence on Wall Street. These proxy advisory firms come close to herding cats.

So, what is a proxy advisory firm?

A proxy advisory firm will take a very visible position on corporate matters subject to shareholder vote.  Then the firm encourages Wall Street investors to vote as the proxy advisory firm recommends.

These proxy advisory firms have no control over Wall Street investors, only the power to sway investors by their argument supporting their recommended position.

No, shareholders don’t always vote as the proxy advisory firms recommend but often they do.

Over the years, a few proxy advisory firms have earned a powerful reputation for producing recommendations on shareholder vote issues which are supported by well-reasoned thinking and should result in outcomes which benefit shareholders and corporations.

Sure, there are times when corporations view the proxy advisory firms as adversarial.  The proxy advisory firms would likely respond that their positions on shareholder vote issues should improve corporate governance practices which are in the best longer-term interest of companies too.

Regardless of the motives, proxy advisory firms’ power is unmistakable.

These firms have changed the dynamics on Wall Street.  Under the guidance of proxy advisory firms, shareholders now act in more coordinated fashion on corporate policy issues including management compensation and M&A defense provisions. 

And, the proxy advisory firms’ influence is growing.  At some point, the balance of power may shift. 

Already, we see isolated incidents.  Over time, company after company may recognize the change.  Eventually, coordinated shareholder instruction to direct major corporate actions may come to be seen as the normal order.

I know it’s hard to imagine now. Time will tell.

Please contact me to discuss this topic or for assistance with any capital raising or M&A projects.

Herding Cats

It’s Deja Vu All Over Again

 

(213) 222-8260

dennismccarthy@ariesmgmt.com

Yogi Berra was right:  “It’s Déjà vu all over again.” 

Those of us who’ve been in the financial markets for a number of years have seen Wall Street prices rise and fall periodically.  I can’t predict exactly when they’ll rise or fall but I’m certain they will.

Therefore, when stock prices fall across the board, I don’t panic. I know it’s a cycle; prices will rise again eventually. 

Also, experience has taught me that when stock prices fall, public companies should once again pull out and dust off for consideration certain time tested corporate actions.

It’s kind of like pulling out the snow gear this time of year.  It’s a ritual.

What kind of corporate actions are appropriate to consider when stock prices drop?

First, I would say is stock buybacks. 

Yes, I know that my prior blog post cited a McKinsey Quarterly article reporting that companies don’t actually buy back stock when stock prices are low. 

My point is that public companies should consider a buyback program and, if appropriate, follow through.

Next, not to be paranoid, but public companies should review their takeover defenses.

Particularly now when big companies are awash in cash and their organic growth has slowed, big companies may see acquisitions as a smart means to get growth by putting their cash to work. Heaven knows, cash earns nothing sitting in the bank.

There’re a number of common takeover defenses, some which vary depending upon the company’s state of incorporation.  Common defenses include poison pills, staggered boards, shareholder vote submission and vote threshold provisions.

What I’m recommending here is that a company review with its Board, attorneys, investment bankers and IR professionals just what’s appropriate for the company given its circumstances.

Third, be proactive about M&A.

Rather than sit back and wait for a suitor to call, go ahead, evaluate your competition and all the adjacent players, those companies which are not direct competitors but are nearby.  Make sure your analysis includes all the global players too. It’s a very small world now.

For companies operating in several businesses, you really must evaluate each business independently.  Who knows, this might even lead to a split-off like that of ITT and Sara Lee.   

The goal of this analysis is to determine where there are good fits with your company, where one plus one equals three or more.  Even if you don’t immediately act on the analysis, you’re better off knowing the landscape if a suitor calls.

While you’re looking at alternatives, you should consider whether a “go private” or “go dark” transaction makes sense for your company.  Unfortunately, for many companies, the cost of being public outweighs the benefits.

I can help your company to consider all these actions in a timely and cost efficient manner .

Please contact me with questions or to discuss any of these projects.

Potential Trojan Horse?

Maybe because this M&A defense provision doesn’t enjoy a colorful name like a “poison pill”, the recent battle waged over proxy rules for selecting board members and determining many critical M&A corporate governance  provisions went largely unnoticed except by a small band of M&A specialists.

The side of this battle, described as defense, would likely claim victory because it succeeded in judicially thwarting a measure by the SEC to mandate a set of procedures to clarify and standardize the proxy proposal submission rules known as “advanced notice bylaw and proxy access rules”.

See what I mean about the catchy name?

What was left standing after the fierce battle were provisions which permit shareholders to submit proposed proxy provisions for a vote by shareholders.  Shareholders, therefore, can propose proxy proposal submission rules to address what was in the thwarted SEC mandate.

So the question is, in the next several years, will shareholders seize this opportunity to vote into place proxy proposal submission provisions which are more aggressor friendly than those in the thwarted SEC mandate?

Will slow to no growth in corporate performance trigger more shareholder impatience and activism and, guided by proxy advisory firms like ISS, translate into proxy proposal submission provisions which facilitate changes in underperforming companies’ boards?

Will we look back and see that “the defense” declared victory by defeating the SEC mandates and completely missed what turns out to be a more dangerous development?

The attached post from the law firm of Latham & Watkins provides an excellent discussion of the topic and suggests potential corporate responses.  Please click on the link below to download the pdf document.

http://www.lw.com/upload/pubContent/_pdf/pub4437_1.pdf

Many thanks to Latham & Watkins (www.lw.com) for this valuable article.