Highlights from the world of Proxy Papers you can’t afford to miss!
General Motors Company
New York Stock Exchange – June 6
David Einhorn’s Greenlight Capital is seeking shareholder support at GM’s 2017 annual meeting for a proposal to split GM shares into two separate listed equities, dividend shares and capital appreciation shares. Under Greenlight’s plan, the dividend shares would pay GM’s current quarterly dividend at an annual rate of $1.52 per share, while the capital appreciation shares would be entitled to the remainder of GM’s earnings in excess of current dividends, including all future growth. Greenlight argues that GM shares currently trade at a significant discount to intrinsic value and that its plan would unlock value by forcing the market to appropriately value the dividend and give credit for GM’s earnings potential.
Greenlight discussed its plan privately with GM for a number of months but went public after the board dismissed the plan citing a number of concerns, including valuation uncertainty, the potential to jeopardize GM’s investment grade credit rating, a lack of established market demand and governance conflicts associated with a dual-class structure. GM argues that it fully and fairly assessed the plan, including engaging multiple financial advisors and seeking the advice of credit rating agencies, which provided feedback indicating the plan would be credit-negative. Greenlight argues that GM actively undermined its plan in discussions with rating agencies, including modifying the term sheet provided by Greenlight to make the dividend shares appear more like preferred equity with a fixed payment obligation and less like common equity with no fixed payment obligation, as Greenlight suggests it intended.
Frustrated by its engagement with the incumbent board, Greenlight has determined to also seek shareholder support to remove and replace three directors at the 2017 annual meeting, arguing that new perspective is needed to realize the intrinsic value of GM shares. The incumbent board believes it has the right strategy to create shareholder value and that Greenlight is seeking to elect new directors only for the purpose of advancing an ill-advised proposal.
Buffalo Wild Wings, Inc.
NASDAQ – June 2
The proxy battle at Buffalo Wild Wings comes to a head this week when the restaurant chain affectionately known as “B-Dubs” (henceforth “BWW”) convenes its annual meeting of shareholders. Activist investor Marcato Capital Management has pushed for the “wings-beer-sports” focused casual dining operator, which owns about 50% of its restaurants and franchises the others, to adopt a 90% franchised model. Marcato believes the refranchising strategy, along with operational initiatives, could boost BWW’s profit margins and lead to a potential tripling of BWW’s stock price. Marcato alleges that BWW has lost its way under its long-tenured CEO and that a complacent board has failed to hold management accountable. Meanwhile, the BWW board views Marcato’s plan as an aggressive and unproven “financial engineering” strategy that offers little upside but instead threatens long-term shareholder value.
While disagreeing on the optimal business structure, Marcato and the board both recognize that the company must take action to address BWW’s declining guest traffic, lower same-store sales, depressed profit margins and slower growth overall, which in recent years contributed to BWW’s stock price underperforming peers. No doubt spurred on by Marcato’s involvement, over the last 18 months BWW has refreshed its board with five new directors, including one of Marcato’s nominees, to bolster the food and restaurant experience of the board. The company has also made changes to the management team (though the CEO remains), implemented operational initiatives designed to improve performance and retained an outside industry consultant to assist management. While BWW’s recent promotions and pricing adjustments appear to have curtailed traffic and sales declines, profitability has suffered and industry-wide headwinds are expected to keep margins under pressure.
Going forward, it seems that BWW will need to find a way to continue appealing to consumers with changing tastes and preferences, while also better controlling costs to improve profitability, as the company seeks to deliver the above-average returns it historically yielded for investors until recently. The upcoming meeting therefore presents an opportunity for BWW shareholders to express their endorsement of the company’s recent changes, including a reconstituted board and more fully developed strategy to address the challenges confronting the business, or to push for further change by electing to the board a major shareholder and another former restaurant executive who have pushed for broadly similar operational strategies but a drastically different business structure for BWW.
Banc of California
NASDAQ – June 9
It appears “change” is the name of the game for Banc of California this year. At last year’s annual meeting, the company’s advisory vote on executive compensation failed to receive majority support from shareholders, with approximately 29% of shareholders supporting the proposal; however this was just one of the issues the company faced in the past year.
Following several autumn 2016 news articles and blog posts which raised concerns regarding transactions with related parties, particularly with then-CEO Steven Sugarman and members of his family, in October the company issued a press release indicating that the board’s “disinterested directors” had hired a law firm and formed a special committee to review the alleged connections and transactions. Subsequently, on January 23, 2017, the company announced that the prior press release had contained inaccurate statements, as it appears that the investigation was “directed by Company management rather than any subset of independent directors”. The Banc further announced on January 23 that Steven Sugarman resigned as CEO and that the company was under formal SEC investigation in relation to certain of the issues under review by the special committee.
Leadership changes have extended beyond management to the board, with independent director Richard Zenewajs’ appointment as chair, and the board itself has undergone significant refreshment, with several directors resigning and new directors joining the board. Due to the company’s classified board structure, shareholders will only vote on the re-election of two incumbent directors, Messrs. Benett and Sznewajs, at this year’s annual meeting; however Richard J. Lashley and W. Kirk Wycoff were appointed to the board in Feburary 2017, and Mary A. Curran and Bonnie G. Hill are expected to join the board at the conclusion of the 2017 annual meeting.
The company has also proposed several charter amendments as part of its efforts to adopt corporate governance best practices, including board declassification, providing for the removal of directors with or without cause, a reduced supermajority requirement to amend bylaws regarding special meeting rights and the elimination of supermajority requirements for certain provisions of the bylaws.
Fiesta Restaurant Group Inc.
NASDAQ – June 7
Like many other fast-casual restaurants, Fiesta has not been immune to the various headwinds plaguing the industry recently. A poorly-timed and unsuccessful expansion of its Pollo Tropical brand has only exacerbated the financial downturn for Fiesta. Against this backdrop, activist investment firm JCP Investment Management took up a significant minority stake in Fiesta over the past year, and JCP is now spearheading a shareholder group that is pushing for a boardroom shakeup. Meanwhile, the board has tried to address Fiesta’s recent struggles by undertaking a host of initiatives that include hiring a new CEO, appointing two former restaurant executives as independent directors, conducting a sale process of the entire company, and outlining and communicating a strategic renewal plan. At Fiesta’s upcoming annual meeting, shareholders must decide whether JCP has presented a strong enough case for board turnover, or whether Fiesta has made enough constructive changes to warrant a second chance.
Cypress Semiconductor Corporation
NASDAQ – June 8
At first glance, observers could be forgiven for assuming the current contest at Cypress follows something of an established path: Dissatisfied with the company’s cultural shift in his absence, a spurned founder/CEO attempts to wrest control back from the board responsible for his ouster, presumably in service of reinstating the tone and tenor of the prior regime. A closer look, however, yields a much more complex narrative implicating key board members in a purportedly failed effort to identify and manage dubiously disclosed conflicts of interest critically tied to Cypress’ executive chairman. While the board continues to ardently assert no such conflict exists, investors might reasonably question whether increasingly damaging revelations stemming from ongoing court proceedings have started to crack the façade.
PT Sampoerna Agro Tbk
Indonesian Stock Exchange – June 9
Thanks to one of its subsidiaries, PT Sampoerna Agro Tbk finds itself in an undesirable situation. In this case, a subsidiary was fined a record IDR 1.072 trillion for forest fires in Indonesia that sent a haze of smoke across a broad swath of Southeast Asia. Although the fine is being appealed, the amount, if upheld by the Indonesian courts, may burn a hole in the bottom line of the company and its other subsidiaries, whose consolidated comprehensive income for the past financial year was only IDR 449.35 billion. Although environmental considerations may not have been a serious focus for companies in the past, the size of the fine (and its potential impact on future dividends) may be cause enough for shareholders to press for improved risk management, oversight and environmental stewardship. Through such approaches, perhaps, in the future, shareholders too can help to prevent forest fires.
WPP plc
London Stock Exchange – June 7
It seems like the numbers go up every year: WPP’s share price, Sir Martin Sorrell’s pay total, and the level of shareholder opposition to the company’s remuneration report. Last year’s 33.45% against vote was the largest rebellion since the proposal was voted down in 2012, and WPP’s remuneration committee took the hint – with a binding remuneration policy vote on the 2017 AGM agenda, it has proposed a raft of changes aimed at forestalling the embarrassing public relations that would follow a rejection. The company already employs best practice structural features throughout the program; the problem has long been one of quantum. Accordingly, short and long-term incentive levels are going down, along with pension contributions and the threshold payout for LTIs, and benefits will be replaced by a fixed allowance. Despite this ~30% reduction, the revised pay opportunity is still somewhat staggering (a combined short- and long-term incentive opportunity of 10x salary for Sir Martin); whether it’s enough to mollify shareholders remains to be seen.
Alphabet Inc.
NASDAQ – June 7
Not many companies can make WPP’s executive pay package look modest by comparison, but the company formerly known as Google may have done just that after granting its CEO, Google, Sundar Pichai, nearly $200 million in equity during 2016. Besides the sheer size of the grant, it’s worth noting that unlike at 94% of other S&P 500 Software and Services companies, no portion of the award is subject to performance.
The voting stakes at Alphabet are not particularly high. As a U.S. company, its pay vote is advisory, not binding; moreover the company’s share class structure means that approval is effectively assured, with founders’ Class B shares carrying ten times the voting power of ordinary Class A. Nonetheless, opposition has been bubbling up, with an amendment to the company’s stock plan generating a 28% against vote at the 2016 AGM. With Alphabet only offering its owners a “Say on Pay” once every three years, it will be interesting to see if shareholders take this opportunity to make a stand, however symbolic it may be.
Elsewhere on the agenda, six shareholder proposals cover a range of topics, from governance (removing the dual-class share structure) to politics (seeking disclosure regarding lobbying, political spending, and ‘fake news’). Of particular note is a resolution seeking a report on gender pay equity — timely, given that the U.S. Department of Labor recently accused the company of “systematic compensation disparities against women.”
OTHER NOTABLE MEETINGS:
- UnitedHealth Group Incorporated (New York Stock Exchange – June 5)
- Netflix, Inc. (NASDAQ – June 6)
- salesforce.com (New York Stock Exchange – June 6)
- Biogen Inc. (NASDAQ – June 7)
- Dollarama Inc. (Toronto Stock Exchange – June 7)
- Comcast Corporation (NASDAQ – June 8)
- Compagnie de Saint Gobain SA (Euronext Paris – June 8)
- Norilsk Nickel (Moscow Exchange – June 8)
- Telefonica (Bolsas y Mercados Españoles – June 8)
- Toyota Industries Corporation (Tokyo Stock Exchange – June 9)