Friday, February 25, 2011

The Citadel Directors' Institute Seminar: March 17-18, 2011

On March 17-18, 2011, The Citadel School of Business Administration will be hosting The Citadel's Directors' Institute--an informative seminar for executives covering corporate governance best practices; legal, regulatory, and political developments; and risk management.

The seminar--located in Charleston, SC at Charleston Place Hotel--will provide for an engaging discussion on pressing business matters between corporate directors and professional leaders.

Edward Ferris

Edward Ferris, a Partner at Hedge Fund Solutions and Managing Partner, Charlesmore Partners International, will be speaking at the conference about CEO succession planning. (Download Edward's paper on shareholder activism & CEO succession planning)

Other experts will be discussing a variety of issues, including: executive compensation, leadership and ethics, global regulations, fiduciary and legal responsibilities of the Board, Board oversight of management, and the roles of Board sub-committees, among other topics.

 Some of the faculty will include:
  • Chief Justice Myron T. Steele -Chief Justice, Supreme Court of Delaware
  • William S. Bojan - President CEO, Integrated Governance Solutions
  • Mark A. Borges- Principal, Compensia
  • Simon Lorne -Vice Chairman and Chief Legal Officer, Millennium Partners LP
  • Dr. Charles Elson -Chair Corporate Governance and the Chair of the John Weinberg Center for Corporate Governance, the University of Delaware; Board Member HealthSouth Corp
  • Edward Ferris -Managing Partner, Charlesmore Partners International; Partner, Hedge Fund Solutions
  • Dr. Mark Frigo -CPA & CMA, Director, The Center for Strategy, Execution, and Valuation and Director, The Strategic Risk Management, DePaul University-Kellstadt Graduate School of Business
  • L. William Krause - A Board Member of the following organizations; Coherent Inc., Core-Mark, Inc., and Brocade Communications Systems Inc.; retired Chairman and CEO of 3Com
  • Keith Longacre -Partner and Leader of Enterprise Risk Management, Ernst & Young
  • Patrick McGurn -Special Counsel, Governance-RiskMetrics Group
  • Randy Normes- Executive Vice President, Aon Risk Services, Inc.,
  • David Ripsom -The Chairman and CEO of Nuclear Electric Insurance Limited
Click here to see a tentative agenda.

David Schatz

M&A Deal Lawyer (1923-2011) Joseph Flom Leaves an Enduring Legacy

(1923 - 2011)

Joseph H. Flom (1923-2011) passed away yesterday at 87, but he leaves an enduring legacy for revolutionizing the legal landscape of mergers and acquisitions. Throughout his professional career, he was known as an aggressive and passionate lawyer who helped transform a small upstart into one of the world's most powerful corporate law firms. Skadden, Arps, Slate, Meagher & Flom--which has more than 2,000 attorneys--is the largest United States law firm in terms of revenue ($2.2 billion in 2009).

Flom was noted for representing clients in high-profile hostile takeovers and proxy fights during the 1970s and '80s--a practice that profoundly changed Wall Street. He was a lawyer so skilled in this field that whenever a merger was announced, arbitrageurs immediately wanted to know whose side Flom was representing. Some of his most contentious cases included the following: Revlon takeover by Perelman; ABC sale; Chevron acquisition of Gulf Oil; Marathon Oil takeover by US Steel; Anheuser-Busch takeover by InBev.

Shareholder activists and corporate clients both eagerly fought to gain his counsel. Many clients established retainers with Flom that would ensure that they wouldn't be finding him on the other side. Retainers, indeed, have produced a substantial source of Skadden's income, since the firm first implemented the practice in the late '60s. According to Lincoln Calpan, author of Skadden: Power, Money, and the Rise of a Legal Empire, by 1984 the number of corporations retaining the firm rose to around 300, each paying ~$150,000 a piece off the fee.

Flom was also active in philanthropic endeavors. He was founding trustee of the Skadden Fellowship Foundation, as well as a major supporter of cancer research and education. His support toward the community is noteworthy and continues to make a meaningful impact.

From humble origins to an indelible career on Wall Street, the M&A mastermind dealmaker will be deeply missed. His legacy lives on.

David Schatz

SEC Eyes Faster Disclosure for Activist Funds

Move could hurt hedge fund campaigns; help firms prepare defenses

By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) — The Securities and Exchange Commission may soon require activist hedge fund managers to disclose more quickly the stakes they take in companies whose management they are trying to shake up.

The agency effort would also likely make it easier for retail and arbitrageur investors to jump on the bandwagon and purchase shares in companies targeted by activists at the same time as it makes it more difficult for insurgents to accumulate the stake they believe they need to be profitable in their campaigns.

Currently, activist investors must submit a public Schedule 13D filing to the SEC within 10 days of owning more than 5% of the stock of a public company when they have plans to communicate some strategic option for the firm, such as seeking to influence the control of the company. (Those who pass the 5% threshold but on a passive basis file a Schedule 13G filing.)

However, Michele Anderson, chief of the SEC’s Office of Mergers & Acquisitions, told MarketWatch that she has plans to recommend to the commission that they should shorten the number of days activist investors have before they must publicly disclose they have a 5% stake in the company. Existing time-frames for disclosure have been in place since 1968 as part of the Williams Act.

“The staff believes that period may be outdated, it has been in place for over 40 years now, and we have concerns that It may provide opportunities for investors to obtain a sizeable stake in the company before they are obliged to make any public disclosure,” Anderson said.

The expected move comes as activism is surging. Insurgents typically by large minority stakes in companies they deem to be undervalued and push for mergers, special dividends or governance changes that include board shake-ups and CEO pay alignment. Some 70 companies have already been targeted by activist investors in 2011, according to Damien Park, managing partner at Hedge Fund Solutions Inc.,a Philadelphia-based consulting firm.

Activist investor William Ackman spearheaded an insurgent campaign at J.C. Penney Co. (NYSE:JCP)  in...
Read the entire story at MarketWatch

Friday, February 11, 2011

Icahn and Drapkin Both Threaten Proxy Fight Against Mentor Graphics (MENT)

Mentor Graphics (MENT)
Market cap: $1.565B
Shares: 110 million
Board: 8 members, annually elected
Institutional Ownership: 94.2%
Poison Pill: In place with 15% trigger

Icahn: 14.7% beneficial ownership (13D filing, DFAN14A)
Drapkin: 5.48% beneficial ownership (13D filing, DFAN14A)

The Oregonian

Activist Concerns: Company is undervalued; management hasn't contained costs; poor corporate governance decisions, specifically regarding decision to move the 2011 annual shareholders' meeting; operational improvements can be made to increase share value.

Activist Seeking: Both seek board representation; Icahn has stated that he is pushing for MENT's sale.

Icahn 13D Item 4: "Mentor Graphics Corporation... announced that it will hold its 2011 annual meeting of shareholders six weeks earlier than last year, and left shareholders with only 10 days to nominate a dissident slate. We, at that time, called the Company and stated that, in light of our prior friendly discussions, we viewed the announcement as a hostile and unprovoked defensive tactic intended to impede shareholder rights. We asked the Company to rescind the announcement, which it refused to do. We therefore currently intend to nominate three individuals for election..., but reserve the right to nominate a different number of individuals, up to a full slate" (emphasis added).

Icahn DFAN14A statement: "[A] strategic acquirer should find extremely attractive the fact that the Company spent $407 million on SG&A ($313 million on marketing and selling expenses and $94 million on G&A) over the last twelve months"

Drapkin 13D Item 4: "[Casablanca] believe[s] that the Issuer's operations may be improved, and hope[s] to engage in an open and constructive dialogue with the board of directors and management of the Issuer regarding its assets, business, strategy, financial conditions and operations... Casablanca expresses its concerns and disappointment about the curtailment of shareholder rights resulting from their actions with respect to the meeting date... [Casablanca] intend[s] to nominate an alternative slate of directors" (emphasis added).

Mentor Graphics' Response: "Mentor Graphics' Board and management team are focused on delivering shareholder value and we have a proven track record of growing our earnings and share price. Our share price has grown over 70% in the last year, and it grew about 50% in the previous year, for a two year growth of over 150%, significantly outperforming our peer group and the market... With regard to nominees, our nominating and corporate governance committee, comprised of independent directors, will evaluate and consider qualified nominees".

Casablanca Capital's Letter to Mentor Graphics' Board

Posted by David Schatz

Thursday, February 10, 2011

Mackenzie Partners' Alert on Say-on-Pay

With say-on-pay (SOP) and say-when-on-pay (SWOP) now in effect, informed shareholder communication is more important than ever. While public companies with a float lower than $75 million are exempt from the Dodd-Frank provisions on SOP and SWOP until January 21, 2013; all other companies are now legally required to host a SOP vote either annually, biennially, or triennially and a SWOP vote at least once every 6 years (both of which are non-binding).

Mackenzie Partners, a leading proxy solicitor and consultant, recently sent a memo to its clients highlighting some technicalities of SOP and SWOP.

SOP and SWOP technicalities
  • Effective as of this proxy season, instead of recommending a withhold vote against certain directors, in most cases, ISS and Glass Lewis will just simply recommend a negative vote for SOP - for issues pertaining to executive compensation.
  •  "ISS will continue to recommend votes against compensation committee members, but only in rare 'egregious' situations or if you are continuing to engage in a problematic pay practice that has already been the subject of a withhold recommendation".
  • Some institutions have stated that if they vote NO on SOP, they will also vote against the comp committee members.
  • Dodd-Frank officially made SOP a non-routine issue and, as such, SOP does not allow for discretionary voting by broker non-votes. This change in definition is particularly relevant to companies with a large retail shareholder base.
  • ISS will no longer reverse a negative vote recommendation based on a subsequent 8-K filing. Companies won't have the luxury of "lets see what ISS says and then we can decide".
  • For SWOP, ISS and Glass Lewis will recommend in favor of annual SOP votes.
  • Thus far, for SWOP, it appears that a majority of companies will be recommending a triennial vote.
  • Mackenzie Partners "expect[s] many large companies to concede to the inevitability of the influence of ISS and recommend an annual vote in the proxy statement".
  • Companies abstaining from a SWOP recommendation (ie. leaving it up to shareholders to decide) will not be able to have discretionary voting authority over proxy cards that are returned blank.
  • A company can exclude a shareholder proposal on SOP only when it has adopted a SOP measure that accords with shareholder majority approval, as opposed to just shareholder plurality approval.
  • Companies must disclose the frequency of SOP vote by issuing an 8-K filing "no later than 150 calendar days after the annual meeting in which the vote took place, but in any event no later than 60 calendar days prior to the deadline for submission of Rule 14a-8 shareholder proposals for the next annual meeting".
  • 13-F filing companies will need to disclose how they voted on SOP, SWOP, and golden parachute compensation issues.

How to plan for SOP and SWOP

1. Know your shareholder base.
     a. What is the institutional, retail, hedge fund mix.
     b. How many shares will be heavily influenced by ISS or Glass Lewis.
     c. What are the voting policies of the top holders and how do they view SOP and SWOP.

2. Determine early on if you may have compensation concerns.
     a. Read the last few ISS and Glass Lewis reports. There may be issues that were raised that have not been resolved. These points may not have been significant enough to lead to a vote against director nominees at the time, but could now result in a recommendation Against SOP.

3. If you believe you have a significant issue, you should engage with your holders before the proxy is filed and be prepared to do so on a broader scale once you are soliciting proxies.
     a. This should not be a casual outreach. Target who you should contact and go in with a team that is prepared and can discuss compensation knowledgeably.
     b. Know which firms are open to this type of governance and compensation related engagement.
     c. Know who you should be talking to - it may not be the portfolio manager or analyst that investor relations departments usually talk to.
     d. Know the voting process and spheres of influence at each firm.
     e. Come out of the call or meeting with notes on any concerns and keep these organized. This is key for ongoing discussion, and particularly important when trying to discern what a negative vote on SOP means.

Mackenzie Partners' memo can be found here.

Posted by David Schatz

Tuesday, February 1, 2011

Phil Goldstein on Activist Investing

Opalesque just recently conducted an interview with Phil Goldstein and Andy Dakos from Bulldog Investors. The two-part video interview is posted below.

About Bulldog Investors:  Bulldog Investors often employs investor activism to unlock the intrinsic value of its investments – mostly in closed-end funds and more recently with Special Purpose Acquisition Vehicles (SPACs). Bulldog has conducted more than 30 proxy contests and several “hostile” tender offers since its inception in 1992 and has been called "[t]he king of closed-end funds" by Fortune Magazine

Phil Goldstein formed Bulldog with Steve Samuels in 1992 after 25 years as a civil engineer for the City of New York.   Goldstein is a widely-quoted expert on closed-end funds, hedge funds, value investing, investor activism, corporate governance and securities regulation. In 2006, Goldstein succeeded in a legal challenge to invalidate the SEC’s controversial rule to register hedge funds.  Goldstein graduated from the University of Southern California in 1966 with a Bachelor of Engineering degree and from C.C.N.Y in 1968 with a Master of Engineering degree.

Learn about:
- Phil Goldstein: Transition from civil engineer to value investor
- Foundation of Bulldog Investors' investment strategy
- How do you define yourselves as "activist investors"?
- To what extent can activist investors act as "catalysts" to help unlock value in an asset?

Learn about:
- How to use activist investing practices to pressure management
- How to run a successful proxy fight
- Why did you sue the SEC?
- Where are the costs of hedge fund regulation felt?

Clips extracted from (1) and (2).

Posted by David Schatz