May 27, 2021

Stockholder Votes: Sometimes, Not to Decide is to Decide

Prof. Ann Lipton recently blogged about the battle for The Tribune Company.  Her blog provides a nice overview of all the drama surrounding the deal, including the “last minute intrigue” surrounding how Patrick Soon-Shiong, the billionaire owner of the Los Angeles Times, would vote his 24% stake in The  Tribune Co. The way the vote shook out, Soon-Shiong was in a position to scuttle the deal by voting against it or abstaining from voting at the company’s May 21st special meeting of stockholders.

So what did he do? As Ann explains, Soon-Shiong claims to have abstained, but that’s not exactly what he did:

The day of the vote, he released a statement that he would “abstain” because he was a “passive” investor in Tribune – as though anyone could be passively invested while owning 24% of a high profile public company.

More importantly, he didn’t really abstain – he simply submitted a blank proxy card, and the Board voted his shares in accord with its recommendation, i.e., in favor of the sale.  This initially caused some confusion in the reporting, because the proxy statement instructions distinguished between blank proxy cards submitted by shareholders of record, and blank proxy cards submitted by beneficial owners (i.e., holders in street name):

If you are a stockholder of record and you return your signed proxy card but do not indicate your voting preferences, the persons named in the proxy card will vote the shares represented by that proxy as recommended by the Board of Directors. If you are a beneficial owner and you return your signed voting instruction form but do not indicate your voting preferences, please see “What are ‘broker non-votes’ and how do they affect the proposals?” regarding whether your broker, bank, or other holder of record may vote your uninstructed shares on a particular proposal.

The proxy statement later explained that broker non-votes were, functionally, votes against.  Soon-Shiong, with his large stake, was a record stockholder, and so his blank card was a delegation of voting power to Tribune’s Board – a vote in favor – despite his claim of abstention.

The blog goes on to point out that one reason for this approach may have been Soon-Shiong’s concern that things might have been more uncomfortable for him in the LA Times newsroom if he formally voted in favor of the deal. Although I wonder whether it will be even more uncomfortable for him there once it dawns on his employees that he apparently thought they were too dumb to figure out that this is exactly what he did.

When you’re drafting a proxy statement, it’s easy to get bogged down trying to process the implications of abstentions and broker non-votes, but the bottom line is that if a record holder returns a signed but unvoted proxy card, that’s neither an abstention nor a non-vote. Instead, it’s an authorization for the proxy holders to exercise their discretionary authority in the manner laid out in the card. If you’re a record holder, sometimes not to decide is to decide.

John Jenkins