The first thing to catch our eye; the number of “official proxy fights” already underway is 33% higher than last year ’s previously record-breaking rate. By early February, 72 ‘campaigns’ were being tracked by FactSet Sharkwatch, vs. 54 in last year’s period, and the rate seems to have trended up sharply since then. No real surprise, 38 of the campaigns - or more than half – were launched by hedge funds, a rate that is also up vs. last year, when less than a third of the fights were staged by hedgies.
Even more noteworthy, however, is how many of the official and ‘threatened fights’ - including some of those Vote- No campaigns, targeted at individual directors - are being settled before the Meeting materials even mail:
At Motorola, for example, where last year Carl Icahn tried for three seats and failed to win a single one, he ended up with two seats (although he was originally aiming for four) and also managed to force an agreement to break up the company, where now, his directors will be able to agitate for much faster action than planned, from within.
The New York Times Co., which last year easily fought off an investor campaign for board seats, enlarged the board by two and conceded the two seats to a new coalition whose very names have an ominous ring – Harbinger Capital Partners and Firebrand Partners.
At UBS, the chairman, whose board had been stonewalling calls for his resignation in the aftermath of massive writedowns, smelled the coffee perking and stepped down before the meeting record date.
At Citigroup, outside director C. Michael Armstrong - who headed the Audit and Risk Committee while Citi’s recent credit issues budded, bloomed and abruptly burst - stepped down from the committee (but not the board) – and appears to have averted - or at least diluted a ‘vote no’ campaign against him that would surely have won big voter support. This, plus other actions that Citi laid out to the AFL CIO’s Daniel Pedrotty, chief of its Office of Investment - to make additional changes in board composition and committee leadership and do it soon, “satisfy our concerns” Pedrotty said.
In more signs of the times, Duckwall-ALCO’s chairman resigned to aver t a proxy fight with Strongbow Capital. Energy Partners agreed to add three directors selected by Carlson Capital to its board, to avert a fight with them. And at Sprint – which has suffered a 75% drop in its market cap over the past nine months – and where big “vote-no” numbers were a sure thing - four directors have announced that they will not be standing for re-election.
Another big new development - and one to watch carefully, we’d say - is the number of pre-fight fights, where combatants go to the courthouse before the proxy fight officially begins:
Before ultimately reaching an accord with Motorola, for example, Carl Icahn sued them in Delaware to compel the production of board minutes, information on personal use of corporate planes and other documents so he could see “whether and to what extent the Board of Directors of Motorola failed in their duties…in supervising management and setting policy and direction”. Icahn is also suing Biogen as we write this, seeking board minutes and other documentation surrounding a failed auction of the company, designed, he says, to head-off his proxy fight to elect three directors.
At least one target company has caught on here too: Charming Shoppes is suing hedge funds Crescendo Partners and Myca Partners, alleging they misrepresented their true intentions in filings to elect three directors, saying they have a “track record of using proxy fights to disrupt corporations and to profit by forcing them to sell assets, buy back stock or buy off defendants and their cronies.” Kind of rings a bell, no? Look for more lawsuits like these, we guarantee.
In another interesting case, CNet Networks went to court to thwar t a proxy fight by Jana Partners, contending that Jana hadn’t held $1000 worth of CNet shares for at least a year. Describing their arguments as “a tempest in a teapot”, Delaware Chancellor William Chandler ruled that the CNet by law provision applied only to the use of the company’s own proxy machinery, and not to a solicitation launched by Jana on its own.
But don’t despair, corporate citizens…companies can still fend off and even win big on many of the causes du jour – if they can get their act together, that is: As we went to
press, the campaign to “vote no” on some or all of the Morgan Stanley directors totally fizzled out, with every director getting 90% or more ‘yes” votes, and Chairman John Mackgetting a rousing 94.5%. And “say on pay” - where we expect many of the 200 proposals that have been put forward to date to pass - drew only 37% of the votes – a piddling number by today’s standards. Watch for our post-season post-mortem in our second quarter issue.
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