Highlights from the world of Proxy 
Papers you can’t afford to miss: Goodman Group, Constantin Medien, Sims Metal Management, Oracle Corporation, Virgin Australia Holdings, and an update on INFOR Acquisition Corp.
Goodman Group
Australian Securities Exchange – November 17
What do companies do when a proposal to approve their CEO’s equity grant receives a significant backlash from shareholders? Some companies restructure their LTI plans. Some may withdraw the grant altogether. And some, such as Goodman Group, simply do not put an equity grant proposal up for shareholder approval at the next meeting. In Australia, companies are not required to seek shareholder approval to grant equity to executive directors as long as the vested shares are purchased on market. However, large companies typically offer shareholders the option to express their views on grants made to executives in the interests of good corporate governance and transparency. Goodman Group had such a proposal on every single AGM ballot since 2011. However, following a 38% protest against the CEO grant at the 2015 AGM, this year the company simply released an announcement that it had granted 2,400,000 rights to Mr. Goodman, representing his full incentive remuneration (including 2016 STI), worth approximately A$14 million. It would appear that this decision was made to avoid yet another revolt against the generous grants. Perhaps the company forgot that shareholders have other means to express their dissent at general meetings.
Constantin Medien AG
Deutsche Börse – November 9
Constantin Medien’s AGM in July was postponed during the meeting after it became apparent that it would be impossible to wrap things up by midnight. The reconvened meeting is set to be a two-day extravaganza, with two major shareholders battling for control over the board and Constantin’s future strategic direction. In the red corner is Dieter Hahn, chairman of the supervisory board, who appears to favor a major strategic shift away from the film business. In the blue corner is Bernhard Burgener, former CEO of the company and current CEO of a Constantin-controlled subsidiary that includes its film operations, who opposes these plans.
Aside from a contested board election and a vote on Constantin’s strategic realignment, shareholders will also be asked to vote on a shareholder proposal from the Burgener side to withdraw confidence from current management board members and a proposal from the Hahn side to assert claims for damages against Mr. Burgener, among others, in connection with former loan and share sale agreements that have created some confusion as to Constantin’s current ownership structure.
With both sides holding around 30% of the share capital, one would presume that winning over swing voters would be top priority. However, shareholders that are out of the loop are likely to be puzzled by the lack of clear rationale provided in some of the shareholder proposals and countermotions.
Sims Metal Management Limited
Australian Securities Exchange – November 9
Keeping executives incentivized through an extended restructuring can be tricky. There’s a lot of hard work to be done, but most of it won’t show up on the balance sheet or be appreciated by the market for some time. Do you issue retention awards? Lower your financial and market-based performance targets? Issue discretionary awards when the targets aren’t met? Increase fixed pay? Sims Metal Management went with “all of the above”, granting A$2.7 million in discretionary equity awards after executives failed to hit FY2016 bonus targets, plus an additional A$5.8 million in retention awards for good measure. In addition, the board adjusted the payout scale for future relative TSR-based LTI awards to allow partial vesting at below-median performance and to reduce the level of outperformance required for a maximum payout, along with lowering ROCCE targets as a proportion of budget under the FY2017 STI plan. Any one of these moves might make sense in isolation; but put together, the perceived need for such a range of one-off payments and stop-gap adjustments raises the question of whether the board should have just sent the incentive structure to the scrapyard and crafted something more aligned to the ongoing turnaround.
Oracle Corporation
New York Stock Exchange – November 16
Oracle Corporation’s annual meeting stands to be a contentious affair as shareholders are asked once again to cast their ballots on the company’s pay practices. Oracle has drawn ire from shareholders in recent years, having failed each of its say on pay votes since its 2012 annual meeting. Such consistent opposition is particularly noteworthy taking into account founder, chairman and chief technology officer Larry Ellison’s significant 28% ownership stake in the company. While Oracle has made minor adjustments and tweaks to its pay programs the central issue remains: executive pay at the company significantly outpaces its peers. Indeed, non-executive director compensation at the company has also been a point of contention with board members receiving among the most lucrative director pay packages in the United States, despite recent reductions.
Other notable developments at the company include the adoption of a proxy access bylaw on the standard terms where groups of up to twenty shareholders holding 3% or more of the company’s shares for at least three years may nominate the greater of two candidates or up to 20% of the board (“3/3/20/20”). The amendment comes in response to a shareholder proposal which received majority support at the 2015 annual meeting. Ultimately, however, one question will be at the forefront of shareholders’ minds: has Oracle made enough improvements to its pay structure to pass its first say on pay vote in five years?
Virgin Australia Holdings Limited
Australian Securities Exchange – November 16
With the rising economic and political clout of China, there has been much discussion of the Asian Century – highlighted by the US government’s strategic “pivot to Asia”. As is usually the case, when there is money to be made, corporates are also making a strategic pivot. Virgin Australia Holdings appears to be on the same path, in a quest to cash in on the growing lucrative Chinese market. Following the announcement of Air New Zealand’s divestment in the Company in March 2016, HNA Group and Nanshan Group, two Chinese conglomerates with interests in the aviation market, stepped into the void left by Air New Zealand. Through a series of Entitlement Offers and placements, the Chinese groups have raised their holdings in Virgin to approximately 19% each. The strengthening of HNA Group and Nanshan Group on the Company’s shareholder registry could be Virgin’s gateway to the Chinese travel market, as they attempt to close the gap with their local rival Qantas.
However, Virgin may have jumped the gun in its anticipation of the impact of its new ownership structure by giving MD/CEO Borghetti a 29% increase to his fixed remuneration in FY2016 (placing his fixed component in line with the median of CEOs in the ASX20-50).
INFOR Acquisition Corp
Toronto Stock Exchange – October 24 (UPDATE: Deal Terminated)
INFOR Acquisition Corp. (“IAC”), a special purpose acquisition company, and ECN Capital Corp., a newly independent commercial finance business recently spun off from Element Financial Corp., planned to combine in an unusual transaction. The arrangement contemplated the acquisition of IAC by ECN, yet this is the opposite of the usual structure for deals involving SPACs. ECN is an operating business, while IAC is the acquisition vehicle with equity capital to be used to acquire a company. The situation is further complicated by the fact that ECN was not yet trading as an independent company when the parties agreed to the terms of the transaction in July. With no ECN trading price to refer to, the parties instead based the terms of the exchange on assumed fair values for each company. However, when ECN began trading two months later, just three weeks before IAC shareholders were set to vote on the deal, the market trading price of the ECN shares was 30% below the value assumed under the agreement.
As a result, IAC shareholders, who were entitled to a cash redemption option allowing them to exchange their shares for roughly the same IPO price at which they invested (approximately C$10.00 per share), and who also could have simply sold their IAC shares in the market at a price roughly equal to their net cash value, had little to no incentive to exchange their IAC shares for ECN shares at an implied value of less than C$7.00 per IAC share. Recognizing this, the parties agreed to terminate the arrangement and IAC said it would continue to look for an alternative transaction, perhaps one where it is the acquirer rather than the target.