Monthly Archives: July 2007

July 25, 2007

How the Proxy Season Fared: Strong Support for Defense Limits

From ISS’ Corporate Goverance Blog: U.S. investors provided strong support this season for shareholder proposals that target takeover defenses, such as “poison pills,” classified boards, supermajority requirements, and dual-class equity structures. In addition, proposals seeking the right to call special meetings did well.

A bylaw proposal by investor Nick Rossi that sought a shareholder vote on future poison pills won 73.4 percent at Hewlett-Packard, according to company filings. There was a 79.3 percent vote at MeadWestvaco for investor William Steiner’s proposal asking the company to redeem its poison pill or put it to a shareholder vote, according to the company.

At Walt Disney, investors gave 58 percent support to a novel bylaw proposal by Harvard University Professor Lucian Bebchuk that called for a 75 percent vote by independent directors to adopt or amend a pill plan. The company adopted a modified version of Bebchuk’s proposal in late June.

However, due to low support at companies such as Praxair and Home Depot, pill-related proposals received 47.8 percent support across eight meetings where results are known. In 2006, pill proposals averaged 55.6 percent support.

Meanwhile, shareholders expressed greater support for proposals asking companies to abolish classified boards and hold annual elections for all directors. About 40 requests for a declassified board structure were voted on this year, and the measure averaged 67 percent support over 19 meetings where results are known, including 90.4 percent at restaurant chain O’Charley’s, which may be a new record for a management-opposed resolution. (Last year, board declassification proposals averaged 66.8 percent support.)

Investors withdrew 14 proposals on this topic, while management at 62 companies filed proposals to declassify their boards. These management resolutions reflect the growing number of firms that are dropping these defenses. Only 45 percent of S&P 500 firms now have classified boards, down from 56 percent in 2004, according to ISS’ Board Practices/Board Pay 2007 study.

Investor support remained high for proposals that ask companies to eliminate supermajority requirements to approve bylaw changes and other matters. These resolutions have averaged 67.2 percent across 21 meetings, about the same as the 2006 average of 67.8 percent. The average this year was bolstered by high support for a resolution voted at Dollar Tree Stores’ annual meeting on June 21, which proponents say won 83 percent support–the highest this season. In addition, management at 28 companies asked shareholders to approve bylaw or charter changes to remove these requirements.

Individual investors filed a series of new proposals that ask for the right of holders of a 10 to 25 percent stake to call special meetings. At the 13 companies where preliminary or final results have been released, those proposals averaged 57 percent support, according to ISS data. The highest vote known, 72.4 percent, occurred at Honeywell. The lowest vote, 19.3 percent, came in at Ford Motor, where a significant portion of the stock is insider-owned.

This season also saw increased investor scrutiny of companies with dual-class stock, which can be an insurmountable takeover defense. Shareholders targeted companies with “A” and “B” class stock that give multiple votes per share to one share class, which is often controlled by the founder’s family. Seven proposals aimed at eliminating dual-class stock were voted on, but most of the companies declined to release vote totals in advance of their quarterly reports.

Shareholder proposals seeking to end dual-class structures won significant support from outside investors at Hovnanian Enterprises and Ford Motor, proponents said. A LongView resolution won 14 percent at Hovnanian, where insiders control 75 percent of the voting power. At Ford, a similar proposal received 27 percent support. With the Ford family controlling 40 percent of the voting power, proponent John Chevedden estimates that about 45 percent of non-family investors supported the measure.

Morgan Stanley Investment Management filed a dual-class proposal at the New York Times Co., but the SEC allowed the company to exclude the resolution from its proxy. Instead, the Morgan Stanley fund and other investors protested the company’s equity structure by withholding 42 percent support from the four directors who are elected by outside stockholders.

Proposals that advocate a separation of the roles of chairman and CEO–through the adoption of an independent board chair–did less well this year. At the 23 meetings where results are known, these proposals averaged 25.4 percent, compared with 30.2 percent last year.

Of the 40 such proposals voted on, only two received majority support–52.7 percent at CVS/Caremark, according to company filings. The other, at Newmont Mining, received over 50 percent, according to investor John Chevedden, but the company declined to release exact vote totals until its next regulatory filing.

Overall, individual shareholders had significant success in attracting support from other investors this season. Chevedden, who filed about 30 proposals this season and represents other individual shareholders at annual meetings, reports that 42 governance proposals filed by individuals received more than 50 percent support this year. Chevedden said these majority votes are the best showing ever by individual investors with whom he is in contact.

In addition, shareholders at 20 firms approved management proposals this year to implement governance changes sought by individual investors’ resolutions, according to Chevedden.

July 19, 2007

Chuck Nathan on Appraisal Rights

In this podcast, Chuck Nathan of Latham & Watkins provides some insight into a recent Delaware case – In re: Appraisal of Transkaryotic Therapies (Del. Ch. Ct., 5/2/07) – dealing with appraisal rights, including:

– What happened in the recent Transkaryotic Therapies case?
– How might the case impact appraisal rights going forward?
– What might it mean in terms of the strategies that hedge funds pursue?

European Commission Ordered to Pay Damages for Wrongfully Blocking Takeover

Last week, the Court of First Instance of the European Communities found the European Commission liable for damages following the Commission’s unlawful prohibition of Schneider Electric’s acquisition of Legrand. This is the first time the Commission has been found liable to pay damages for the erroneous exercise of its merger review powers. In our “European M&A” Practice Area, we have posted related memos.

July 17, 2007

Posted: July-August issue of Deal Lawyers print newsletter

We have just sent our July-August issue of our new newsletter – Deal Lawyers – to the printer. Join the many others that have discovered how Deal Lawyers provides the same rewarding experience as reading The Corporate Counsel. To illustrate this point, we have posted the July-August issue of the Deal Lawyers print newsletter for you to check out. This issue includes pieces on:

– The Leveraged Buy-Out with a Public Stub: Deals So Far and Factors to Consider
– “I’ll Swap Two Derek Jeters and a Pack of Cherry Bazooka for Five Barry Bonds”
– Taming the Tiger: Difficult Standstill Agreement Issues for Targets
– Drafting Forum Selection Provisions
– The “Sample Language” Corner: Joint Governance Provisions in Merger of Equals Transactions

Act Now: Try a no-risk trial today; we have special “Rest of 2007” rates, which includes a 50% discount – and a further discount for those of you that already subscribe to The Corporate Counsel. If you have any questions, please contact us at or 925.685.5111.

July 13, 2007

Congress Tightens “National Security” Reviews of Foreign Investment in the US

On Wednesday, Congress passed the “Foreign Investment and National Security Act of 2007” to formalize and tighten the process for reviews of foreign acquisitions of businesses in the US that raise potential national security concerns. The new Act amends the “Exon-Florio Amendment to the Defense Production Act” and codifies – as well as extends – recent trends toward more stringent review of foreign acquisitions by the Committee on Foreign Investment (CFIUS), which is an interagency committee chaired by the Treasury Secretary and composed of various representatives of the executive branch. There are also enhanced Congressional reporting requirements.

The new Act cleans up many of the provisions of earlier proposals considered problematic by the business community. We have posted memos regarding this development in our “National Security Considerations” Practice Area.

Status Check on Fairness Opinion Proposal

Following the filing of Amendment No. 4 – dated June 7th – to proposed NASD Rule 2290, many expected the revised rule proposal to be promptly published in the Federal Register with any comments to be submitted within 21 days and SEC approval granted shortly thereafter. To date, it does not appear the revised rule proposal has been published in the Federal Register. Instead, the NASD recently submitted Extension No. 7 to the rule proposal, extending the period for SEC action to August 31th. The prior period for SEC action was set to expire on July 23, 2007. All filings relating to the rule proposal can be found here.

July 11, 2007

Will Private Equity Firms Be Appearing in Peer Groups?

From Mark Borges’ “Proxy Disclosure Blog” on With all of the recent attention on private equity firms and their eye-popping compensation arrangements, it’s probably only a matter of time before that world begins influencing pay practices in the public company arena. I would expect that many compensation committees at companies with a high-performing CEO are cognizant of the risk of losing him or her to one of these firms looking to recruit a top executive to run one of their portfolio companies. On the flip side, a company looking to hire out of that environment would also have to be sensitive to the market for executive talent in the private equity sector.

This leads to me to ask: at what point will we begin to see private equity firms become part of the peer group analysis that many companies use in positioning their executive pay? I recently saw an article highlighting Comcast’s Compensation Discussion and Analysis, in which the company acknowledged the challenges presented by this new reality:

“The Compensation Committee is also aware that private equity and investment banking firms have become increasingly important competitors for, as well as sources of, executive talent. Many of our current executives are likely candidates for positions at these firms. We recently recruited Michael J. Angelakis, a managing director of Providence Equity Partners, as our new Co-Chief Financial Officer. We could again in the future hire employees at the named executive officer level (and below) from these kinds of organizations. While there is little or no publicly available data on compensation in the private equity market, recent press reports have noted the increasing trend of private equity recruitments from among highly respected members of senior management in high-profile companies – often at significant premiums to traditional public company compensation levels. While the Compensation Committee believes that peer company comparisons remain appropriate benchmarks for evaluating the company’s overall compensation practices, these potential recruiting threats and opportunities have begun and can be expected to continue to have an effect on the company’s compensation philosophy and practices.”

It wouldn’t surprise me to see more companies address this issue in their CD&As next year; and, eventually, to see some of these private firms begin to work their way into the pay analysis; at least for the most senior positions at the largest companies. To me, the challenge will be coming up with reliable data – right now, the numbers are a bit sketchy. But once that happens, it’s almost certain to impact executive pay levels.

July 10, 2007

Private Equity Funds: The Funds Keep Flowing

It’s hard to determine which of these WSJ articles from yesterday is more persuasive: this piece from the WSJ Deal Journal that private equity funds continue to raise funds at predigious rates – or this article that buyouts are potentially waning. If funds continue to flow in – in the absence of somewhere to put that money – I imagine buyouts have to continue…

Reverse Mergers: Latest Developments

Join us tomorrow for our webcast – “Reverse Mergers: Latest Developments” – to hear David Feldman of Feldman, Weinstein & Smith, Tim Keating of Keating Investments and Nanette Heide and Michael Dunn of Seyfarth Shaw discuss the latest issues in the area of reverse mergers.