Thursday, June 26, 2008

TCI Loses Dividend Proposal at J-Power; Wins 4 Seats at CSX

On June 25th TCI lost a month long battle with J-Power, a Japanese nuclear power company. On May 21st TCI, which owns 9.9% of J-Power and who unsuccessfully attempted to increase their ownership to 20% by petitioning the government to do so, submitted five proposals to be voted on at the June 25th annual meeting. All five proposals, including one to double the company's dividend, one to restrict cross-shareholdings, and one to diversify the board with outside directors, were defeated by shareholders.
Read more about this on Bloomberg

Elsewhere on June 25th, TCI claimed a victory at CSX Corp. where they believe four of their five director nominees were elected to the board at the annual meeting. CSX management believe the vote is too close to call and will likely wait until IVS Associates (an independent inspector of elections) releases the official tally on Friday June 27th.
Read more about this at Reuters

Tuesday, June 24, 2008

Catalyst Equity Research Report: Week Ending June 20th 2008

This report highlights companies where activist investors have increased their ownership position or are pressing for change during the week ending June 20th 2008.

To receive a copy of this report send an email to To begin receiving the report FREE via email weekly, subscribe at Hedge Fund Solutions.

Activist Situations Worth Watching

Ticker Target Company Activist(s) Notes
ADPT Adaptec Steel Partners Obtained Board Representation in 2007; recently increased ownership
BARI Bancorp Rhode Island Financial Edge Fund Activist filed derivative lawsuit relating to Reg FD after losing proxy contest
BKF BKF Capital Catalyst Fund Seeking board representation and preservation of cash
CKR CKE Restaurants Ramius Capital Wants CKR to reduce cost structure
CPWM Cost Plus Inc Pier 1 Imports Unsolicited bid by Pier 1
CSX CSX Corp TCI Seeking board representation at June 25th annual meeting
DVD Dover Motorsports Marathon Partners Wants business sold
JOB General Employment Enterprises Timothy Stabosz; Zeff Capital Investors are separately presing for changes to compensation, poison pill and performance
PWER Power-One Bel Fuse Pressing Company to sell off business unit to them

Monday, June 23, 2008

2008: The Year of the Activist Hedge Fund

Hedge Fund Solutions' article on activist investing in 2008 is featured in Alternative Investment Quarterly. The magazine can be purchased online for $399.

The article featured in the magazine titled, "2008: The Year of the Activist Hedge Fund" is also available for free on HFS's website.

Sunday, June 22, 2008

Companies Amend Advance Notice Requirements and Poison Pills To Include Financial Derivatives

Rather than wait for the the SEC to adopt new rules governing swaps and stock borrowing agreements in director elections (and more importantly during shareholder activist campaigns), Companies are beginning to implement changes to their bylaws and shareholder rights agreements on their own volition.

On June 18th the WSJ reported that two Companies: Louisiana-Pacific Corp. (LPX) and Micrel Inc. (MCRL), recently adjusted their shareholder rights plans to include derivatives when calculating the Pill's trigger.
See WSJ Story

On April 2nd 2008 MCRL announced an amendment to their advanced notice requirements shortly before activist investor Obrem Capital nominated a slate of directors to replace the current directors at the company's annual meeting. (On June 9th MCRL announced less than 18% of shareholders voted for Obrem's slate of nominees. See MCRL's Press Release

Micrel's new document requires shareholders to disclose any derivative contract entered into as of the date of the notice and include whether or not the derivative transaction will be settled before or after the record date. See Micrel's Certificate of Amendment of the Bylaws of the Company.

On May 23rd 2008 LPX renewed their Stockholder Rights Plan which was due to expire on June 6th 2008.

LPX's new document changed the definition of Beneficial Ownership to include "certain derivative or synthetic arrangements having characteristics of a long position in Common Shares." See LPX's Amended Rights Agreement

Thursday, June 12, 2008

CSX: Activists TCI and 3G Continue to Fight for Board Seats With Big Win in Federal Court

Company CSX Corp. (CSX)
Activist Hedge Funds The Children's Investment Fund (TCI) and 3G
Ownership 8.7% at a cost of $41.99/share plus 12.3% economic interest in swaps
Other Activists Icahn, Jana, Ramius, Clinton
Annual Meeting June 25th
Demand Replace 5 of 12 Directors

The Situation: Activist investors TCI and 3G Capital (the "Funds") together purchased 8.7% of CSX's stock at an average cost of $41.99 per share. In addition, the Funds disclosed that they have an "economic interest" in an additional 12.3% of CSX through their ownership of various derivatives known as cash settled equity swaps. Following the ownership disclosure, TCI and 3G launched a proxy contest to replace 5 of the 12 board members up for election at the annual meeting scheduled for June 25th.

The Controversy: Since investors do not own shares in swap agreements, they technically do not own the voting rights that accompany those share. As a result, TCI and 3G did not feel legally obligated to disclose their ownership in CSX with the SEC until they owned more than 5% of the equity (this disclosure is required under SEC Rule 13-d).

CSX sued the activists claiming that the swap agreements were part of a scheme to evade the reporting requirements of the SEC and requested the Court block the Funds from voting their shares at the annual meeting.

The Outcome (so far): On June 11th a federal judge ruled that TCI is allowed to vote their shares at the annual meeting - but left the door wide open for an appeal by CSX.
On June 17th both sides petitioned the 2nd U.S. Circuit Court of Appeals to review the decision by Judge Kaplan.

Interesting News Articles and Legal Notes on the CSX - TCI Battle

The New York Times: Hedge Funds Can Vote at CSX Meeting


June 12, 2008

A federal judge ruled Wednesday that two hedge funds seeking to win a proxy fight at the CSX Corporation had violated securities laws by not disclosing their positions and intentions many months before they did.

But Judge Lewis A. Kaplan of Federal District Court in Manhattan nonetheless ruled that there was nothing effective that he could do. He refused to bar the hedge funds from voting their shares, as CSX had requested, at the annual meeting on June 25.

“Some people deliberately go close to the line dividing legal from illegal if they see a sufficient opportunity for profit in doing so,” Judge Kaplan wrote in his 115-page decision.

“A few cross that line and, if caught, seek to justify their actions on the basis of formalistic legal arguments even when it is apparent that they have defeated the purpose of the law. This is such a case.”

Read the Full article at The New York Times

Wachtell Lipton's Memo on the Court's decision
Link to Wachtell's memo

From Blank Rome's
The Guardian: Company-Side Shareholder Activism Alert
SEC Opines That Cash-Settled Equity Swaps Do Not Confer Beneficial Ownership within the Meaning of Regulation 13D of the Exchange Act

United States District Court Southern District of New York
Link to the Court's Opinion

US Senator Chuck Schumer Urges Law to Punish Hedge Funds For Hiding Ownership

WASHINGTON, June 17 (Reuters) - Legislation might be needed to impose stiffer penalties against hedge funds that improperly conceal their corporate holdings through the use of equity swaps, a senior member of the Senate Banking Committee said on Tuesday.

New York Democrat Sen. Charles Schumer urged the U.S. Securities and Exchange Commission to clarify what is required of equity swap holders who seek to influence the voting decisions of their counterparties.

Schumer said in a letter to SEC Chairman Christopher Cox that he was "disturbed" that a federal judge ruled last week that two investment firms waging a proxy battle at railroad CSX Corp violated securities law in acquiring large stakes in the rail company, but did not impose any significant penalties.

Read the Full Article at Reuters