Tuesday, April 28, 2009

Selectica v. Versata - video clip of testimony re: Steel Partners

Here is a video clip from yesterday's trial Selectica v. Versata Enterprises over the validity of the company's poison pill.

In this clip James Arnold Jr., a Board Director at Selectica, gives testimony about whether Selectica's accounting firm was providing non-public information to Steel Partners about the value of their net operating loss carryforwards (NOL's).

To view a live and on demand video webcast of the landmark trial go to CVN's website.

Posner Critique of Executive Compensation

No less a luminary in the law and economics world than Judge Richard Posner has weighed in, sort of, on the debate on executive compensation. He does so in a procedural ruling on an obscure case involving mutual fund fees, so one might not draw too many definitive conclusions about his views. Nonetheless a close reading of the ruling reveals some distinct opinions about whether CEOs earn too much, and more importantly the source of that problem.

The actual case involves some mutual fund customers who sued the fund manager alleging that the manager charges excessive fees. In the procedural matter Judge Posner urges consideration of their case by the full Appellate Court, as “growing indications [that] executive compensation in large publicly traded firms is often excessive because of the feeble incentives of boards of directors to police compensation.” He deals out opprobrium generously: “Directors are often CEOs of other companies and naturally think that CEOs should be well paid. And often they are picked by the CEO. Compensation consulting firms, which provide cover for generous compensation packages voted by boards of directors, have a conflict of interest because they are paid not only for their compensation advice but for other services to the firm – services for which they are hired by the officers whose compensation they advised on.”

Posted by Michael Levin. Michael is with Hedge Fund Solutions and is a regular contributor to this blog. Contact Michael at mlevin@hedgerelations.com.

Monday, April 27, 2009

Catalyst Investment Research for Tecumseh Products - Complimentary Copy

Hedge Fund Solutions recently launched an investment research product dedicated to uncovering undervalued publicly traded companies that could have the potential to generate outsized returns due to an activist investor's involvement.

Click here to download a complimentary copy of the Catalyst Investment Research for Tecumseh Products Company (Ticker: TECUA; TECUB)

Download HFS's previous analysis for CTO, AVGN and TIER.

Annual subscriptions are now available (a minimum of 24 research reports per year). Email: research@hedgerelations.com if you are interested in subscription information.
Click here to download a fact sheet about the research.

If an investor purchased $10,000 worth of stock on the day Hedge Fund Solutions issued their company-specific Catalyst Investment Research report, that investor would have realized a 17.7% investment gain through the end-of-day trading April 24, 2009.

Hedge Fund Solutions, LLC is not an investment, legal, or tax advisor, and none of the information available through the Firm is intended to provide tax, legal or investment advice.

Sunday, April 26, 2009

Live Coverage of Selectica v. Versata Poison Pill Dispute

Courtroom View Network (CVN) will provide a live and on demand video webcast of the landmark Selectica v. Versata trial beginning Monday, April 27 in the Delaware Court of Chancery.

At issue in the 5-day trial is the validity of the company's poison pill which was triggered after Selectica reduced the threshold from 15% to 5% and Versata, who owned 5.2% at the time, knowingly acquired more shares. Click here to review our earlier blog summarizing this. Also, click here to review a January 6 client alert from Schulte Roth & Zabel. (Marc Weingarten from SRZ is an expert on activist investing and a regular contributor to this blog).

In addition to the live webcast, CVN subscribers will have access to all trial content "on demand". Additionally, all evidence presented at trial will be included digitally as part of the webcast. Once the trial is underway we will post a link to a short video clip. In the meantime, click here to see a sample of the Hexion v. Huntsman trial covered by CVN.

To order the Selectica trial from CVN click here.

Posted by Damien Park, President & CEO Hedge Fund Solutions.

Monday, April 20, 2009

The Role of the Board in Turbulent Times: Avoiding Shareholder Activism

This paper, co-written by Matteo Tonello (The Conference Board) and Damien Park (Hedge Fund Solutions) is the fourth in a series of papers from The Conference Board on the oversight role of the board of directors in the current economic crisis. It provides board members with a checklist of issues they should consider addressing in their relations with shareholders and, in particular, how to avoid a costly and disruptive battle with an activist investor.

With corporate valuation declining and an economic and political environment favorable to change, the 2009 proxy season is witnessing a new wave of investor demands. In particular, due to the liquidity problems facing many corporations, there is a clear shift from the financial-oriented activism campaign aiming at cash extractions to new initiatives pursuing strategic, operational, and governance-related corrections.

The economic downturn has created extraordinary upheavals across global markets and severely penalized stock prices. Today, financial markets supply a number of undervalued companies and investment opportunities, as many businesses maintain relatively strong balance sheets and healthy long-term earnings potentials. The paper argues that it is in the interest of corporate boards to act proactively, understand shareholder intentions, and correct vulnerabilities so as to avoid becoming the target of activists. It also offers practical suggestions on how to design an action plan and respond to negative publicity campaigns mounted by disgruntled investors. Several current examples as well as a detailed table of cases from the 2009 proxy season are included.

Click here to download the full article.

Posted by Damien Park, President & CEO Hedge Fund Solutions, LLC.

Dog Bites Man in Delaware Corporate Law Update

Governor Markell of Delaware signed House Bill 19 into law last week, updating a number of provisions of the Delaware General Corporate Law (DGCL), which determines the corporate governance for the majority of U.S. corporations. The long-awaited revisions appear to make some far-ranging changes in the law governing proxy contests, with provisions that both management and investors should like. However, a close read shows that the new law does not change as much as one might think.

The bill allows corporate bylaws to provide for the company to include board nominees of dissident shareholders on the corporation's proxy materials. It also allows the bylaws to provide for the corporation to reimburse dissidents for their proxy contest costs. Seems like this update would please activist investors, who would save considerable time and money on proxy contests, and receive the same financial support that incumbent directors receive in their board campaigns. At the same time the law allows corporations to impose various conditions on proxy access, such as minimum size and term of share ownership, disclosures about the shareholder, and limits on the percentage of shares the dissident can own.

Still, the amendments don't change all that much, at least relative to current Delaware law. First, the amendment contains mostly "may" and "can" verbs, rather than "shall" and "must" - in other words, proxy access remains completely optional. The current DGCL is silent on proxy access, so the new provisions do clear up any doubt that may have existed around whether a corporation can do this, though. On the other hand, nothing in the current DGCL precludes a corporation from doing this, either. So, any corporation that wanted to provide proxy access, either in their bylaws or otherwise, could have done it all along, without the help of House Bill 19. As a trend the changes are positive for activist investors, as it signals the overall will of the Delaware legislature to support proxy access. It also eliminates the possibility of a corporation litigating a bylaw amendment that provides for proxy access. Activist investors will likely be a little disappointed, and corporations relieved, that lawmakers did not see fit to make any of the law mandatory.

Posted by Michael Levin. Michael is with Hedge Fund Solutions and is a regular contributor to this blog. Contact Michael at mlevin@hedgerelations.com.

Wednesday, April 8, 2009

Activist Investors Sidelined by Brutal Market

Eric Jackson, a regular contributor to this blog, recently wrote an article for TheStreet.com titled, Activist Investors Sidelined by Brutal Market. We found this to be an excellent article on the current and future state of activist investing and recommend the read. Click here to read the article or visit Eric's Breakout Performance blog. In the article Eric highlights a few important components for the next generation of activists to master in order to successfully take over.

This has been abbreviated from Eric's article but generally includes the following:

  • Hedge, in order to preserve partner capital in the event of terrible years like 2008. The days of long-only are over.
  • Build a reputation for always doing right for shareholders (especially long-term holders). Some of the "quick fix" activists of the last five years never won the trust of large mutual funds and pension funds, who tend to be the biggest holders of stock of the large-cap companies. As a result, proxy contests failed to win over the support of this important constituency, for fear of how these activists would represent their interests properly.
  • Focus more on strategy and operations, less on single events. There will always be a place for activist investors to go after a company, advocating they sell a single division, or do a quick dividend to shareholders. However, these situations tend to be more prevalent in small-cap companies. Large-cap companies, by definition, have more complex problems and require more complex solutions. The next generation of top activists will understand this and have deep expertise in their firms on strategy and operations.
  • Use the tools of the Internet and social networking . Social networking tools (i.e. blogs, YouTube, wikis, Facebook and Twitter) allow fellow shareholders to pledge support and encourage them to suggest additional ideas on how companies could improve. The next generation of large activist investors will be masters at using the Internet to conduct their campaigns.
  • Be more collaborative, less combative with target companies. It will always be necessary to run successful -- sometimes nasty -- proxy contests against entrenched boards and management. There's a time to knock heads. However, some activists only knock heads. They only know how to hit one key on the piano. The next generation of activist investors will be able to play hard ball but tend to be much more collaborative with the board and the CEO -- at least at the beginning, until reasonable dialog leads nowhere. Such an approach is also far less expensive than an "all-negative, all-the-time" approach.
Posted by Damien Park, President Hedge Fund Solutions

March Activist Investments - 70 Companies Targeted

Below is a summary list of 70 investments made by shareholder activists during March. As a comparison, we analyzed 82 companies last March.

This information was extracted from Hedge Fund Solutions' Catalyst Equity Research Report, a free in-depth weekly research on activist investments.

Click Here to subscribe to the FREE report.

Ticker Company Investor
ACTL Actel Corp Ramius Capital
AGYS Agilysys Inc Ramius Capital
AMLN Amylin Pharmaceuticals Eastbourne Capital
ASPM Aspect Medical Systems First Manhattan Co
ASPM Aspect Medical Systems Coghill Capital
AVCA Advocat Inc. Bristol Investment Fund
AVGN Avigen Inc Biotechnology Value Fund
BARI Bancorp Rhode Island Financial Edge Fund
BASI Bioanalytical Systems Thomas Harenburg
BBI Blockbuster Inc. Mark Wattles
BBW Build-A-Bear Workshop Crescendo Capital
BNV Beverly National Corp Lawrence Seidman
CAMD California Micro Devices Corp Dialectic Capital Management
CEE Central Europe & Russia Fund City of London Investment Group
CHIC Charlotte Russe Holding Inc KarpReilly Capital Management
CITZ CFS Bancorp Inc Financial Edge Fund
CLCT Collectors Universe Shamrock Activist Value Fund
CLHI.PK CLST Holdings Red Oak Partners
CRGN Curagen Corp DellaCamera Capital
CTO Consolidated Tomoka Land Co Wintergreen Advisers
CYBI Cybex International Discovery Partners
DSCM Drugstore.com Discovery Partners
DVD Dover Motorsports, Inc. Gamco Investors
FACE Physicians Formula Holdings, Inc Mill Road Capital
FMMH.OB Fremont Michigan Insurance Corp Harry Long
FSCI Fisher Communications Gamco Investors
GET Gaylord Entertainment GAMCO
GET Gaylord Entertainment TRT Holdings
GMXR GMX Resources Centennial Energy Partners
HWK Hawk Corp Gamco Investors
IPAS iPass Inc Foxhill Opportunity Master Fund
JAX J. Alexanders Corp Mill Road Capital
KFS Kingsway Financial Services Oakmont Capital
KONA Kona Grill Mill Road Capital
LCAV LCA Vision Inc Stephen Joffe
LGF Lions Gate Entertainment Carl Icahn
LNBB LNB Bancorp Richard Osborne
LSR Life Sciences Research Andrew Baker
MCGC MCG Capital Springbok Capital
MCRL Micrel Inc Obrem Capital
MDS Midas Inc. Silverstone Capital
MHGC Morgans Hotel Group Co Edward Scheetz
MIM MI Developments Hotchkis & Wiley Capital
MXF The Mexico Fund Inc. City of London Investment Group
MYE Myers Industries GAMCO Investors
NLCI Nobel Learning Communities Blesbok Inc
NOX Neuberger Berman Income Opportunity Fund Western Investment
NTN NTN Buzztime Trinad Capital
NUF Nuveen Florida Quality Income Municipal Fund Western Investment
PHH PHH Corp Pennant Capital
PNNW Pennichuck Corp Gamco Investors
PPCO Penwest Pharmaceuticals Tang Capital; Perceptive Life Sciences
PXD Pioneer Natural Resources Southeastern Asset Management
RDC Rowan Companies Steel Partners
RHDC.PK RH Donnelley Dodsville Investments
RPT Ramco-Gershenson Properties Trust Equity One
RUBO Rubios Restaurant Alex Meruelo
SCLN SciClone Pharmaceuticals Sigma Tau Financial
SLRY Salary.com Raging Capital Management
SRLS Seracare Life Sciences Ltova Holdings
SSE Southern Connecticut Bancorp Inc Lawrence Seidman
SUAI Specialty Underwriters Alliance Hallmark Financial Services
SUG Southern Union Co Sandell Asset Management
TDS Telephone & Data Systems Inc. Gamco Investors
TGT Target Corp Pershing Square Capital
TMI TM Entertainment & Media Bulldog Investors
TRID Trident Microsystems Inc. Spencer Capital
TRMA Trico Marine Kistefos AS
VSNT Versant Corp Discovery Capital
WBSN Websense Inc Shamrock Actvivist Value fund
WOC Wilshire Enterprises Pennsylvania Avenue Funds
WOC Wilshire Enterprises Bulldog Investors

Posted by Damien Park, President Hedge Fund Solutions

Catalyst Investment Research for CTO - Complimentary Copy

Hedge Fund Solutions recently launched an investment research product dedicated to uncovering undervalued publicly traded companies that could have the potential to generate outsized returns due to an activist investor's involvement.

Click here to download a complimentary copy of the Catalyst Investment Research for Consolidated Tomoka Land Co. (Ticker: (CTO).

Download HFS's previous analysis for TIER and AVGN.

Annual subscriptions are now available (a minimum of 24 research reports per year).
Email research@hedgerelations.com if you are interested in subscription information

Posted by Damien Park, President Hedge Fund Solutions and Jon Heller Cheap Stocks: Below Net Current Asset Value, Real Estate and other Value Strategies

Friday, April 3, 2009

Dissidents Avoid Forming a "Group" and Triggering Poison Pill

In a move that continues to shift the balance of power in proxy contests away from the Corporation and toward dissident investors, the SEC agreed this week to allow two activist investors to "round out" a slate of director nominees by permitting them to (1) solicit votes for their own nominees, (2) vote for nominees of an unrelated dissident, (3) vote for the nominees in management's proxy statement.

The SEC's action will undoubtedly have far-reaching implications for corporations concerned with activist investors.

Amylin Pharmaceuticals - Case in Point

Two dissident shareholders - Carl Icahn and Eastbourne Capital Management (ECM), who have each nominated a short slate of five director nominees for election to Amylin's (AMLN) twelve person board at the next annual meeting may state their intention to vote for each other's nominees. Without this approval from the SEC, the two dissident investors would have to change their filing status with the SEC to reflect that they are acting as a "Group". By doing so, the two shareholders would have to combine their ownership positions (
Icahn owns 8.3% and Eastbourne owns 12.5%) which would have breached the threshold on AMLN's poison pill - which is set at 15%.

In a Client Alert about this matter issued on April 2 by the law firm Schulte Roth & Zabel (Mark Weingarten from SRZ is one of our regular contributing experts on activism) the authors conclude:

"The Commission Staff's grant of relief to ECM and the Icahn Funds will further enable soliciting stockholders who are seeking to elect a short slate to "round out" their slate with candidates from the full selection of nominees, even those proposed by another dissident. This new interpretation will allow activists to pursue their goal of achieving better shareholder representation, will allow shareholders to vote for the directors of their choice, and will keep management slates from gaining an advantage when there are multiple dissident slates nominated by unrelated shareholders. Going forward, this scenario may become more common in the activist community..."

To read SRZ's entire Client Alert click here.
To read a Client Alert issued by Gibson Dunn & Crutcher click here.
(Eduardo Galladro from Gibson Dunn is one of our Blog & Tacklers)

Posted by Damien Park, President Hedge Fund Solutions

Thursday, April 2, 2009

Policy Makers Will Make Activist's Job Easier

An article in last week’s Wall Street Journal titled, Policy Makers Work to Give Shareholders More Boardroom Clout talks about federal and state policy makers advancing plans to give shareholders more power in corporate boardrooms.

The SEC, Congress and legislators in Delaware are all working on ways to make it easier for shareholders to choose directors.

Here are some important highlights from the article:

  • The SEC is likely to push forward a proxy access rule by mid-May that will make it easier for shareholders to nominate directors on corporate ballots. As a result, shareholder activists who satisfies the SEC requirements (likely to be linked to the value and length of ownership) will not have to spend their own money soliciting shareholder votes for the election of their director nominees.
  • Congressman Barney Frank is expected to submit legislation to give shareholders an advisory vote on executive pay.
  • The Delaware Senate is expected to pass legislation that would change the state's corporate laws, permitting company bylaws to (i) require that a company include shareholder nominees in its proxy statement, and (ii) that a company reimburse shareholders for the expense of running proxy contests. The law could take effect as soon as August.
Posted by Damien Park, President Hedge Fund Solutions