The SEC’s proxy access rule, which would allow stockholders to have their nominees for director positions included in the company’s proxy materials, is under challenge in the U.S. Court of Appeals for the D.C. Circuit. The challenge was brought by the U.S. Chamber of Commerce and the Business Roundtable, with amicus curiae support from the State of Delaware. On the opposing side, the Council of Institutional Investors, TIAA-CREF and fourteen other funds have filed a brief supporting the SEC’s position.
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Barnes & Noble issued a press release announcing preliminary results of shareholder voting at today’s annual meeting. Based on that data, billionaire investor Ronald Burkle lost his bid to place himself and two others on the board of the bookseller. In addition, the shareholder proposal to amend the company’s poison pill, submitted by Mr. Burkle’s investment funds, The Yucaipa Companies, Inc., was rejected. Yucaipa issued a statement saying in part: “As we pointed out to Vice Chancellor Strine in August [referring to Yucaipa’s failed attempt to have the Delaware court invalidate Barnes & Noble’s poison pill], it is nearly impossible for any stockholder to do something Leonard Riggio [Chairman and largest shareholder] doesn’t want to do because of his built-in voting advantage.” Yucaipa pledged to continue pressing for changes at Barnes & Noble and encouraged the board’s independent committee to consider amending the poison pill “to allow other bidders to neutralize Mr. Riggio’s voting bloc.” For further background, see blogs posted at this site on August 16 and 18, 2010.
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In a recent hearing on a motion to expedite discovery and the scheduling of a preliminary injunction in Steamfitters Local Union 447 v. Walter, et al., Chancellor Chandler concluded that, based on the parties’ briefings and arguments, he did not believe that the disclosure of the target’s free cash flows would meaningfully alter the total mix of information that is available through the definitive merger proxy. In so doing, Chancellor Chandler distinguished the facts presented from the facts in Vice Chancellor Strine’s recent Maric decision and earlier Netsmart decision, but expressed an appreciation and understanding of the plaintiff’s arguments “that Delaware law ought to require as a per se rule that free cash flow estimates going out into the future be provided, disclosed” and invited the plaintiff to file an interlocutory appeal to the Delaware Supreme Court:
“I would be, in the interests of clarification of Delaware law, and in the interests of perhaps leading to the creation of a bright-line rule in disclosure, which I think would be a good thing in some ways – I would be happy, Mr. Liebesman [[plaintiff’s counsel], to sign, today, an order certifying an interlocutory appeal to the Delaware Supreme Court on this question.”
For a discussion of the spectrum of views expressed by the Delaware courts that created the present uncertainty, see the blog posted by Alston & Bird at the PLI Securities Law Practice Center.
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As discussed in this blog recently, Barnes & Noble is at the center of a proxy fight between Ron Burkle, billionaire owner of the Yucaipa group of funds that owns approximately 18.7% of B&N common stock, and Leonard Riggio, Chairman of B&N, who controls approximately 29.9% of the equity. Riggio disclosed yesterday that he had exercised options to acquire 990,740 shares, which will enable him to vote all of his stock holdings. The exercise price for the shares was $16.96 per share, exceeding yesterday’s market price for the shares, which closed at $15.35 per share. Burkle has announced that he will seek to replace the three B&N directors who are up for re-election at the September 28, 2010 stockholder meeting, including Chairman Riggio.
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In a decision rendered on August 12, 2010, Yucaipa American Alliance Fund II, L.P. v. Leonard Riggio, the Delaware Chancery Court upheld Barnes & Noble’s poison pill against a challenge from the company’s second largest stockholder, several funds (the “Yucaipa” funds) run by bilionaire Ron Burkle. The opinion establishes that the court is willing to find a poison pill to be a reasonable defense to threatened proxy contests for the election of new directors, and not just to threats of hostile takeovers. The opinion also includes in dicta the view that a poison pill may be unacceptibly preclusive if it does not leave the insurgent stockholder with a fair chance of success. This view is contrary to a view set out in the court’s recent decision in Selectica, Inc. v. Versata Enterprises, Inc., in which the court said a pill is not preclusive unless it “render[s] a successful proxy contest a near impossibility or else utterly moot.”
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Yesterday, in an open meeting the SEC voted unanimously to issue for public comment a concept release focusing on a wide range of issues related to the U.S. proxy system. The concept release is intended to solicit public comment as to whether the SEC should consider revisions to its rules to promote greater efficiency and transparency in the U.S. proxy system and enhance the integrity and accuracy of the shareholder vote.
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Vice Chancellor Strine’s May 13, 2010 decision in Maric Capital Master Fund, Ltd. is likely to be controversial because the court’s holding (consistent with its prior holding in Netsmart) that cash flow projections are material and required to be disclosed appears inconsistent with the Delaware Supreme Court’s decision in Skeen and Chancellor Chandler’s decision in CheckFree.
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In the recent Delaware case In re 3Com Shareholders Litigation, Chancellor Chandler denied plaintiffs’ motion for expedited discovery to garner facts necessary to support a motion to enjoin Hewlett Packard’s proposed acquisition of 3Com Corporation. The plaintiffs argued that expedited discovery should be granted, in part, because management failed to make adequate disclosure regarding its projections, alternatives considered and the analysis performed by its financial advisor, Goldman, Sachs & Co., in its proxy statement recommending that shareholders vote to approve the merger.
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On January 18, the SEC released the full text of amendments to the proxy rules under the Securities Exchange Act of 1934, as amended. The amendments promote the use of electronic shareholder forums as an effective means of communication among shareholders and between shareholders and management. This advisory discusses how the new rules work and the related benefits and drawbacks for both companies and shareholders.
The advisory is provided in PDF on the Alston & Bird web site: http://www.alston.com/securities_advisory_final_shareholder_rules
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This advisory discussed the amendments the SEC adopted on November 28 to codify its longstanding interpretation of the rule permitting companies to categorically exclude shareholder proposals on shareholder access to company proxy statements for director nominations, and amendments to the proxy rules to facilitate the use of electronic shareholder forums.
The advisory is provided in PDF on the Alston & Bird web site: http://www.alston.com/securities_advisory_shareholder_forum_access
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