Proxy Season 2013 Recap and Alert

Latham & Watkins, the law firm, and Georgeson, the proxy solicitor, have teamed up again to recap the significant events of the 2013 proxy season.  I attended this webinar and, as usual, it was high quality with great information and insights.  The link to the replay is below.

Click here (registration required).

 

 

On-Demand Now Available

 

2013 Proxy Season:
Lessons Learned and Coming Attractions

 

 

 

Program

In this program, halfway through the 2013 proxy season for the Russell 300 companies, Latham & Watkins’ Jim Barrall, Mark Gerstein and Steven Stokdyk, and Georgeson’s  Rhonda Brauer review the 2013 proxy season, including Say on Pay voting results and battleground issues, the impact of executive compensation lawsuits, the positive results of shareholder engagement, increasing shareholder activism, share ownership and voting developments, and look ahead to the prospects for the remainder of the 2013 proxy season, as well as discuss coming attractions on the horizon for the 2014 season. 

Questions

For more information and questions about this webcast, please contact Michele Bravo at michele.bravo@lw.com or +1.213.892.3054.

 

 

To Access the Program

Click here to access the on-demand webcast.

 

You will automatically be directed to the lobby page to launch the webcast.

 

 

2013 Proxy Season Prep

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

It may seem early, but now’s the time to get prepared for the upcoming 2013 proxy season.

Last year’s proxy season was notable for greater shareholder activism as I discuss in my posts (Just a Small Leak, Silent Majority Speaks and Initial Results). 

I suggested this trend was fostered by the rise of proxy advisors in my video (Herding Cats) and would continue.

So, in preparing for the 2013 proxy season, small cap company executives and their boards of directors can gain valuable insights about this season’s key issues by listening to a webinar produced by the law firm, Latham & Watkins, and proxy solicitor, Georgeson.

This webinar covers many issues including proxy access (Potential Trojan Horse), “say on pay”, political spending and several more topics. 

It’s definitely worth the time.  It’s packed with information.  I highly recommend that you click on the link below.

I also encourage you to contact me to help your company to complete any capital market transactions.

Webinar link – registration required: https://event.on24.com/eventRegistration/EventLobbyServlet?target=registration.jsp&eventid=548640&sessionid=1&key=137765EF6ECD99F2943DB8481BBA1B39&sourcepage=register 

Jan 24 addition – link to sign up for executive compensation consulting firm, Equilar, webinar series to prep for 2013 proxy season:

http://info.equilar.com/2013OutlookWebinarSeries_page.html?mkt_tok=3RkMMJWWfF9wsRoiuajIZKXonjHpfsX57ekkWae0lMI%2F0ER3fOvrPUfGjI4CT8pkI%2FqLAzICFpZo2FFdC%2FWccIFS

Jan 30 addition – For those of you who would like to see the quantitative data on the trends in proxy issues and proxy voting, I have two links, one to an article from the magazine, Corporate Counsel, which alerted me to survey data prepared by the Conference Board, which has its own link below.

Corporate Counsel Article Link: http://www.law.com/corporatecounsel/PubArticleCC.jsp?id=1202586196247&=&Analysis_of_Proxy_Voting_Data_Looks_at_SayOnPay_Shareholder_Engagement=&et=editorial&bu=Corporate%20Counsel&cn=cc20130130&src=EMC-Email&pt=Corporate%20Counsel%20Daily%20Alerts&kw=read%20more%20%C2%BB&slreturn=20130030132043

Conference Board Survey Link: http://www.conference-board.org/publications/publicationdetail.cfm?publicationid=2402

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.

M&A Defense – “Devil’s in the Details”

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

Roche’s hostile offer for Illumina is a great case study to follow up my post “M&A Defense Checklist” and to prove that old adage that “the devil’s in the details”.

The Roche hostile offer for Illumina highlights two of my points,

  1. Now there is higher risk of hostile activity for all companies.  Illumina, before the offer, was trading at 4x revenue and 14x EBITDA: not what you’d consider a low valuation target although its stock at $37.69 was below its 52 week high of $79.40.
  2. Companies should carefully review their M&A defenses to uncover and potentially fix any weaknesses before an aggressor uses them against the company.

As background on this case, after what appears to be a short courtship period, Roche launched a hostile tender offer to shareholders to buy Illumina at $44.50/share an 18% premium to Illumina’s closing price the day before the offer.  Roche also announced that it intends to wage a proxy battle which would result in its slate of nominees comprising a majority of the Illumina board.

In this post, I highlight key points from an impressive article entitled “The Chink in Illumina’s Defense” by Steven M. Davidoff, writing as The Deal Professor, a commentator for the New York Times’ “DealBook”.  The article speculates that Roche’s proxy battle strategy will likely include proposals to:

  1. Nominate board candidates for the 4 seats up for election this year;
  2. Propose a by-law amendment to expand the size of the board by two members to 11 and nominate those two board candidates; and
  3. Propose a shareholder vote to remove all of Illumina’s board without cause.

Illumina’s defenses include:

  1. Staggered board of nine members with only 4 up for election this year;
  2. Supermajority vote of 67% of all shares outstanding required to amend a by-law;
  3. Shareholders can’t call a special meeting;
  4. Shareholders can’t act by written consent; and
  5. Poison pill which had expired in 2011 but could be reinstated by board action alone.

Proving that time-tested maxim, “the devil’s in the details”, here’s what we might learn from issues with Illumina’s defenses that Roche may be exploiting according to “The Chink in Illumina’s Defense”.

  1. Certain key elements of Illumina’s defenses are contained in its by-laws, not as charter provisions.  A corporate provision contained in a company’s by-laws may be amended by shareholder action without board action.  In contrast, a provision in a company’s charter requires approval by both the board and shareholders.
  2. Illumina’s by-laws specify the size of the board which Roche is proposing to expand by two to eleven members of which Roche’s slate of 6 would constitute a majority. Shareholders can approve, albeit by 67%, this by-law amendments to expand the board without board approval.
  3. Illumina’s by-laws also permit removal of board members without cause upon approval by a simple majority of the votes cast at the meeting, a relatively low threshold.  Delaware law requires the provision for removal of board members without cause to be in a company’s charter so this provision will, no doubt, trigger litigation as to its validity and usefulness in Roche’s attack.
  4. Illumina’s advance notice provision for submission of proxy proposals to be included for consideration at its annual meeting requires only 90 days vs longer periods which are common.  As a result, Illumina has less time to respond before its annual shareholder meeting.

Subsequent to Roche’s offer, Illumina’s share price rose well above Roche’s offer price signaling that Wall Street thinks Illumina is worth more than Roche’s offer.  Also, Illumina reinstated its poison pill at a 15% threshold with updated definitions of beneficial ownership to include ownership through derivatives.

To read Roche’s offer letter to Illumina, click here or go to www.sec.gov for the recent documents filed under Illumina including its poison pill and various filings by both sides.

This is a valuable lesson for all of us, at Illumina’s expense.

M&A Defense Checklist

Dennis McCarthy

(213) 222-8260

dennis@mbsecurities.com

Well, no sooner did I post “It’s Déjà Vu All Over Again” than I started getting requests for suggestions of what to include on a company’s M&A defense checklist.

You know, it’s simply good practice for a company to periodically review its M&A defenses.

But now, the task of reviewing a company’s M&A defenses takes on greater urgency.  The risk of a company getting an unsolicited offer is higher than usual now because many large companies are loaded with cash but short on revenue growth.

So what would I recommend for the checklist?

Please understand, I’m not necessarily recommending implementation of these provisions but rather suggest they be on your company’s M&A defense review list.

First on my list is a recent hot topic – proxy access rules and advance notice bylaw provisions.  Public companies should be aware of recent developments and consider updating to what’s known as “second generation” provisions.

Next on my list would be a couple charter provisions which slow aggressors.  These would be (i) restrictions on a shareholder’s ability to call a special meeting, and (ii) a prohibition on shareholder action by written consent.

Of course, we can’t forget the “poison pill” or shareholder rights plan.  While poison pills have declined in popularity over the last decade, we’ve seen several recent instances, Barnes & Noble, Airgas and Lions Gate, where a pill has played a key role in a company’s M&A defenses.

Even if you have a pill in place, there are a couple developments to note.  One development is the special purpose pill which, for example, may be used to dissuade a shareholder from triggering tax law change of ownership provisions which impairs use of a company’s net operating loss.  The second development involves expanding the definition of beneficial ownership to include sophisticated new forms of corporate ownership now available.

Another checklist item would be the classified or “staggered” board, where only a portion of the board members, typically a third, are up for shareholder vote each year.  This slows an aggressor’s efforts to change a board through a proxy battle.  A staggered board plus a pill is a powerful defensive combination.

Another defense provision is the supermajority vote which requires a high percentage of shareholders to approve an action, that is, once you’ve got your defense provisions in place.

In contrast, if your company permits cumulative voting, a small but organized minority shareholder group might be able to install a board member despite the group’s small ownership.

Certain states laws permit additional defenses or variations on these provisions.  For example, certain states permit what are known as constituency statutes which enable a board to consider the impact of an acquisition on constituencies including employees or the community, rather than just shareholders.  Depending upon your state, these extra features may be useful.

I would note here that some defense provisions can be implemented unilaterally by board action.  Others require shareholder approval which affects implementation feasibility.

In addition to these items, there are a number of tactical actions like stock buybacks and recapitalizations which can be used defensively in response to or to pre-empt hostile activity.

I recommend that a company set aside time at an upcoming board meeting for a review of its M&A defense provisions.  Company management, its attorneys, bankers and IR professionals can brief the board and make recommendations.

I can help your company to review its defenses in a timely and cost efficient manner. It’s better to be prepared.