Important highlights from upcoming meetings, provided by Glass Lewis’ global research team
Alpine Electronics Inc.
Tokyo Stock Exchange – June 21
No doubt looking to upgrade the low end performance of it sound system, Alps Electric Co., Ltd. wants to reinstall its consumer-facing car audio subsidiary, Alpine Electronics. Last summer, it announced a share exchange agreement, whereby it would acquire the remaining 59.1% of Alpine it doesn’t already own in exchange for ¥90 billion in Alps stock. The merger itself isn’t on this month’s Alpine AGM agenda – instead, shareholders will vote on it at a separate extraordinary general meeting to be held in mid-December. However, concerns regarding the terms of the deal have nonetheless inspired Oasis Management Company Ltd., Alpine’s second largest shareholder with a 9.9% stake, to submit three related shareholder proposals, calling for a bumper dividend payout along with the appointment of two independent directors. The distribution of ¥325 per share is intended to mitigate the alleged damage that the merger would cause to minority shareholders – or simply force Alpine back to the negotiating table. Meanwhile the director appointments reflect Oasis’s allegation that certain members of the current board are not independent due to their relationship with Alps.
Oasis has been consistent in its objections, having originally submitted a letter arguing for a higher valuation (and offering to increase its own stake) and followed up with additional critiques of the methodology employed; however the proposals submitted mark something of a retreat – the hedge fund had initially called for a higher ¥425 per share dividend payment, a vote against one independent director, and a whole new slate of directors, before settling on the current set of proposals. It’s a tricky situation – Alp’s bid doesn’t seem to have faced any real competition or scrutiny, and the company’s share price has consistently exceeded the implied merger value. On the other hand, finding an alternative bid would be tough when Alps already owns ~40% of the company, and funding the huge special dividend Oasis is calling for could upset the company’s cash structure. The fight looks set to continue regardless of the AGM outcome, as Oasis has indicated may still pursue legal proceedings; in the meantime, minority shareholders may want to just turn up the bass and let the trunk rattle.
Rockwell Medical, Inc.
NASDAQ – June 21
A company divided cannot trade. That’s the lesson Rockwell Medical learned recently after the board tried to terminate founder and CEO Robert Chioini on the fly, prompting a bizarre confrontation between board and management, dueling 8K announcements, and ultimately a brief suspension from trading. Mr. Chioini’s actions prompted the board to file a complaint, and the courts have subsequently barred the founder and former CEO from entering the company’s office, communicating with employees or acting as an officer while the parties undergo mediation; meanwhile the board has been ordered to avoid any significant decisions until things get resolved. The board’s aggressive actions are somewhat out of character, as in other areas directors have been much more passive. For example, roughly a quarter of shareholders opposed the company’s say on pay and long-term incentive plan in 2017, yet the board has not taken any material steps to improve the pay structure. Or there’s the governance and nominating committee, which failed to meet even once during the last fiscal year (to be fair, the lack of meetings – and overall change in tone — may reflect significant refreshment, with five of six directors appointed since 2016). For their part, shareholders will get to make decisions on whether to remove the current classified board structure, a new long-term incentive plan and say on pay vote, and auditor ratification – as well as the reelection of one nominee, a certain Robert Chioini, who remains on the ballot though the board asserts he will not actually stand for election.
Kobe Steel Ltd. & Mitsubishi Materials Corporation
Tokyo Stock Exchange – June 21 (Kobe) & June 22 (Mitsubishi Materials)
The boards of both Kobe Steel and Mitsubishi Materials Corporation have spent much of the year to date dealing with fallout from data falsification scandals. Kobe got a headstart, admitting to falsifying product information in October 2017, and Mitsubishi Materials followed a month later. The potential scope is staggering. Kobe misstated the quality of materials sold to more than 600 companies globally over more than a decade, and falsifications may have impacted nuclear power sites and waste disposal standards. They also have something of a history, having falsified soot-emission data back in 2006. Over at Mitsubishi Materials, the coverup has apparently been going on since the 1990s, with the company producing manuals on how to falsify data. Both companies conducted special internal investigations, both of which called for significant changes – not just to internal controls and quality assurance, but to broader governance and management structures. Hopefully these changes stick, because the cost of non-compliance could be going up sharply: in response to ongoing data falsification scandals, last month the Japanese Diet revised legislation to increase the maximum fine for violating Japanese Industrial Standards from ¥1 million to ¥100 million.
Spectrum Pharmaceuticals
NASDAQ – June 18
Sometimes it takes a while. At Spectrum’s 2016 AGM, 60% of shareholders supported a proxy access proposal that didn’t get implemented. The following year, all directors standing for election faced heightened opposition, ranging from 24.5% to 51.7%, and the company’s say on pay was voted down. Meanwhile, a shareholder proposal regarding majority voting was supported by over 86% of shareholders.
It seems that last year’s AGM left an impression on the board, which has subsequently gone on a run of bylaw amendments. Proxy access and majority voting were both implemented, and the company entered the late 20th century by expanding the range of means of board communication to include voice message, fax, and email. In addition, the board rescinded its stockholder rights plan (aka poison pill). Last but not least, the director who failed to achieve majority shareholder support at the 2017 AGM was removed as lead director and will not stand for re-election. Whether that’s enough to placate shareholders remains to be seen. There are no shareholder proposals on the ballot this year; however the board is seeking approval for an increase in authorized capital, and may have to reassure shareholders that the new shares aren’t going to be used for anti-takeover purposes.
Blackberry Limited
Toronto Stock Exchange – June 21
Blackberry Limited has had a tumultuous relationship with compensation proposals. From 2013 to 2017, the company has received below 85% shareholder support on 4 out of 5 say on pay votes, reaching as low as 67% in 2014. Even when the say on pay itself was well supported (90% in 2015), over 26% of shareholders rejected amendments to the company’s equity incentive plan. The company has come under scrutiny for its discretionary and guaranteed award grants, including $84.8 million and $17.2 million sign on equity awards for Mr. Chen and Mr. Chennakeshu, respectively, as well as Mr. Zipperstein’s $2 million discretionary cash bonus and guaranteed four-year annual $2.5 million equity grant.
Luckily for the CEO, lackluster shareholder support in recent years did not deter the board from entering the “Chen Extension”, a performance-based award comprising up to 10 million shares and $90 million in cash, worth an estimated $218 million if fully vested. The award separates the CEO from the other executive officers, as he won’t participate in the same incentive programs. Of course, his incentives have been separate since he got there, starting with that initial $84.8 million sign on award, which recently vested (prompting the extension); his package has been rounded out with a $1 million annual base salary and an annual $2 million guaranteed bonus. The award isn’t subject to shareholder approval, but they’ll have a chance to weigh in via the say on pay vote. The company has cited Chen’s visionary leadership as critical to the development of the company’s business and growth in shareholder value; will that be enough to generate support?
Expedia Group, Inc.
NASDAQ – June 20
A new CEO and a name change haven’t done much to reverse Expedia’s sagging financial fortunes since shareholders unaffiliated with senior executive Barry Diller sent the company a message at the 2017 annual meeting: Time to change up the pay program. Due to Expedia’s unequal voting rights, the company’s triennial say on pay passed easily — except that minority shareholders rejected the package which handed out large equity grants to the new CEO. Shareholders did get to find out how the company would treat previous CEO Dara Khosrowshahi’s partially forfeited equity grant, worth roughly $94 million at the time of its 2015 grant (spoiler alert: he gets to keep a chunk of it as long as he stays on the board). The board didn’t make many changes to the pay program in response to the poor minority vote showing, so it will be telling how shareholders respond to its lack of response, if you will. Finally, executive vice chair Victor Kaufman failed to attend at least 75% of board meetings for the second year in a row, an issue that shareholders of all stripes generally regard as one of the most basic director duties.
AmTrust Financial Services, Inc.
NASDAQ – June 21
AmTrust is asking shareholders to approve an amended buyout offer from a consortium including the company’s founding family and senior management along with support from Stone Point Capital. The amended agreement, which increases the purchase price from $13.50 to $14.75 per Amtrust share, comes after Amtrust failed to secure the support of a majority of minority shareholders needed to approve the original merger agreement. The original offer represented a 33% premium to the company’s unaffected closing share price and provided shareholders with the opportunity to exit their investment after a difficult few years for the company. Nevertheless, that offer faced opposition from Carl Icahn, who argued that the deal undervalued the company and that the founding family was attempting to take advantage of minority shareholders. Icahn acquired the entirety of his 9.4% stake in the company after the record date and was not entitled to vote at the company’s June 4 meeting to approve the original agreement but appears to have convinced a sufficient number of minority shareholders to block the transaction. The company adjourned the June 4 meeting and entered into negotiations with Icahn that led to the improved buyout offer. Icahn praised the improved offer price and agreed to support the transaction and waive appraisal rights.
UACJ Corporation
Tokyo Stock Exchange – June 21
UACJ’s annual meeting looks to be a fairly quiet affair; but that’s only because the drama has already completed offscreen. With Miyuki Ishihara taking over as president, the board of UACJ aimed for a smooth handover by appointing former president Mitsuru Okada as vice chair, and retaining Shigenori Yamauchi as chair. The company’s largest shareholder, Furukawa Electric Company Limited, had other ideas. While Furukawa supported Mr. Ishihara’s appointment, they were looking for a clean break from the past, rather than continuity. The 25% equity holder raised concerns about the company’s business results and share price performance under Okada and Yamauchi, and argued that their retention could downplay their responsibility for underperformance and raise governance concerns regarding lingering influence over Mr. Ishihara’s leadership. UACJ responded, announcing that Messrs. Okada and Yamauchi would resign and instead be appointed to an advisory role. That’s a win for Furukawa, but a situation to watch going forward: given market-wide concerns regarding the influence and accountability of former-executive advisors, it will be interesting to see if Okada and Yamauchi step back or remain involved in the company’s day to day management.
OTHER NOTABLE MEETINGS:
- DaVita Inc. (New York Stock Exchange – June 18)
- Norwegian Cruise Line Holdings Ltd. (New York Stock Exchange – June 20)
- EQT Corporation (New York Stock Exchange – June 21)
- TripAdvisor, Inc. (NASDAQ – June 21)