In mid June (yes, I'm late reporting it) a group of shareholders under the leadership of JANA Partners abandoned their proxy contest against CNET, a San Francisco based website operator.
According to their filings with the SEC, JANA and ally Sandell Asset Management Corp. decided that in light of the proposed acquisition of CNET by a subsidiary of the television network CBS Corp., and the likelihood that it would go ahead regardless of any action stockholders might take, they were discontinuing their efforts.
The announcement came soon after CBS had cleared some crucial regulatory hurdles to completing the takeover.
Here's a link to an entry at the New York Times' blog, by Saul Hansell, that sought to explain the rationale for takeover.
I have no particular point to make. I've written about the JANA/CNET dispute before, and thought I'd take this opportunity to wrap up that storyline. I'm actually at the beach if you're reading this on the day it's being posted. I've figured out this neat trick blogger allows of posting automatically and a specified future date and time. I wrote these words over the holiday weekend.
That'll illustrate the extent of my techno-sophistication well enough! ;-)
Showing posts with label CNET. Show all posts
Showing posts with label CNET. Show all posts
Tuesday, July 8, 2008
Tuesday, March 18, 2008
CNET to appeal
In a ruling last week arising out of the Jana-led proxy fight for control of CNET, the Chancery Court in Delaware interpreted CNET's one-year notice rule as a matter of "proxy access," not one of "advance notice" for a nomination as such.
Proxy access -- the situation in which a dissident shareholder gets to piggyback off of the proxy materials that companies must provide their shareholders, and make its own case within those materials -- is determined by the federal regulatory system.
The court said that CNET's one-year requirement means that a shareholder,m even one who meets the relevant federal test, doesn't have a right to access to management-generated materials prior to that company's shareholder meetings if it has only acquired its stake in the company recently. Nonetheless, if it isn't interested in piggybacking, if it is willing and able to bear the cost of its own materials itself, as Jana is, then it can proceed with its nomination and its resolutions.
This ruling came as a surprise to a lot of observers, including yours truly.
Yesterday (when, by happenstance, most of the financial world was too absorbed by the Bear Stearns saga to notice), CNET said it is appealing to the Delaware Supreme Court.
"CNET Networks said that it continues to believe that its by-law provisions, which were approved by stockholders and have been in place since the Company's IPO, are fully applicable to hedge fund JANA Partners, LLC's proposals, and are valid and in the best interests of stockholders. The Company also said that the lower court decision incorrectly calls into question the by-laws of a large number of companies with the same or similar by-law provisions."
The chancery court decision may "call into question" all those other company's by-laws to the extent that if they use the same words, they'll be subject to the same interpretation. But it doesn't void them, and a company can re-write the wording of its by-laws to be more clear that it isn't merely limiting the piggy-backing.
Another big question here: why is it sometimes Jana and sometimes JANA? The company itself seems to use JANA consistently. But so far as I know, the letters don't stand for anything. Many news organizations, including the New York Times, have accordingly treated "Jana" in this context as a word.
The take-away though is this: advance notice requirements haven't been declared void in Delaware, even those that extend for the unusual period of a year. Still, such notices may be treated to narrow construction due to a feeling of the chancery court that they are against public interest, especially if the newly-0staked dissident is willing to put up its own resources for the proxy contest.
Proxy access -- the situation in which a dissident shareholder gets to piggyback off of the proxy materials that companies must provide their shareholders, and make its own case within those materials -- is determined by the federal regulatory system.
The court said that CNET's one-year requirement means that a shareholder,m even one who meets the relevant federal test, doesn't have a right to access to management-generated materials prior to that company's shareholder meetings if it has only acquired its stake in the company recently. Nonetheless, if it isn't interested in piggybacking, if it is willing and able to bear the cost of its own materials itself, as Jana is, then it can proceed with its nomination and its resolutions.
This ruling came as a surprise to a lot of observers, including yours truly.
Yesterday (when, by happenstance, most of the financial world was too absorbed by the Bear Stearns saga to notice), CNET said it is appealing to the Delaware Supreme Court.
"CNET Networks said that it continues to believe that its by-law provisions, which were approved by stockholders and have been in place since the Company's IPO, are fully applicable to hedge fund JANA Partners, LLC's proposals, and are valid and in the best interests of stockholders. The Company also said that the lower court decision incorrectly calls into question the by-laws of a large number of companies with the same or similar by-law provisions."
The chancery court decision may "call into question" all those other company's by-laws to the extent that if they use the same words, they'll be subject to the same interpretation. But it doesn't void them, and a company can re-write the wording of its by-laws to be more clear that it isn't merely limiting the piggy-backing.
Another big question here: why is it sometimes Jana and sometimes JANA? The company itself seems to use JANA consistently. But so far as I know, the letters don't stand for anything. Many news organizations, including the New York Times, have accordingly treated "Jana" in this context as a word.
The take-away though is this: advance notice requirements haven't been declared void in Delaware, even those that extend for the unusual period of a year. Still, such notices may be treated to narrow construction due to a feeling of the chancery court that they are against public interest, especially if the newly-0staked dissident is willing to put up its own resources for the proxy contest.
Tuesday, January 15, 2008
CNET's bylaws
Enough background. We've cracked open the coconut and can drink the milk of the dispute between CNET and the activist investor leading the proxy fight, JANA Partners.
CNET's bylaws provide as follows:
"Any stockholder of the Corporation that has been the beneficial owner of at least $1,000 of securities entitled to vote at such meeting for at least one year may submit a director nomination to the Board of Directors or, if designated by the Board of Directors, a Nominating Committee."
As you can see, that concerns nominees specifically, not resolutions such as JANA's effort to expand the size of the board.
Another bylaw discusses resolutions:
Any stockholder of the corporation that has been a beneficial ownerof at least $1,000 of securities entitled to vote at an annual meeting for at least one year may seek to transact other corporate business at the annual meeting, provided that such business is set forth in a written notice and mailed by certified mail to the Secretary of the Corporation and received no later than 120 calendar days in advance of the date of the Corporation’s proxy statement released to security-holders in connection with the previous year’s annual meeting of security holders. … Notwithstanding the foregoing, such notice must also comply with any applicable federal securities laws establishing the circumstances under which the Corporation is required to include the proposal in its proxy statement or form of proxy.
---------------
JANA hasn't satisfied the one-year deadline, so (on CNET's reading of these rules) it isn't entitled to propose resolutions or board nominees.
JANA wants the courts either to declare the one-year period invalid or to reinterpret it out of existence. As to the two nominees, it has a good case here. Delaware courts have been vigilant about allowing shareholders a fair shot at getting nominees on the ballot, and are likely to see this holding period as excessive.
As to proposing resolutions, JANA's case seems weaker.
Steven Davidoff explains this all quite well and gives the pertinent links. I'll indulge my own lazy tendencies this morning and simply link to him.
Davidoff is here.
CNET's bylaws provide as follows:
"Any stockholder of the Corporation that has been the beneficial owner of at least $1,000 of securities entitled to vote at such meeting for at least one year may submit a director nomination to the Board of Directors or, if designated by the Board of Directors, a Nominating Committee."
As you can see, that concerns nominees specifically, not resolutions such as JANA's effort to expand the size of the board.
Another bylaw discusses resolutions:
Any stockholder of the corporation that has been a beneficial ownerof at least $1,000 of securities entitled to vote at an annual meeting for at least one year may seek to transact other corporate business at the annual meeting, provided that such business is set forth in a written notice and mailed by certified mail to the Secretary of the Corporation and received no later than 120 calendar days in advance of the date of the Corporation’s proxy statement released to security-holders in connection with the previous year’s annual meeting of security holders. … Notwithstanding the foregoing, such notice must also comply with any applicable federal securities laws establishing the circumstances under which the Corporation is required to include the proposal in its proxy statement or form of proxy.
---------------
JANA hasn't satisfied the one-year deadline, so (on CNET's reading of these rules) it isn't entitled to propose resolutions or board nominees.
JANA wants the courts either to declare the one-year period invalid or to reinterpret it out of existence. As to the two nominees, it has a good case here. Delaware courts have been vigilant about allowing shareholders a fair shot at getting nominees on the ballot, and are likely to see this holding period as excessive.
As to proposing resolutions, JANA's case seems weaker.
Steven Davidoff explains this all quite well and gives the pertinent links. I'll indulge my own lazy tendencies this morning and simply link to him.
Davidoff is here.
Monday, January 14, 2008
Control premiums: some theory
Let's speak in broad theoretical terms for a day. In a classic "hostile takeover," some outside entrepreneur decides that the target corporation has valuable assets which are being incompetently managed. This suggests an arbitrage play -- acquire the corporation, and with it both (a) the assets and (b) the ability to fire the incompetent managers.
By hypothesis, the acquired company will be of greater value with the new bosses, and the market price of the stock will soon reflect that higher value. So in the imagery of the old west, our entrepreneur, having ridden into town on a capital-markets horse and installed the new sheriff, sells his interest in the town for a profit, and rides back out.
The problem is that its difficult to sneak up on a town/company like that. The increase in the company stock price might come too soon. Suppose a particular turn-around artist has gained a reputation for previous gun-slinging escapades of this sort. When he starts buying stock in a new company, other market participants, checking with EDGAR, learn of this and the stock becomes more valuable immediately on the expectation that he'll continuing buying and then work his magic.
Or it becomes more valuable simply because even market participants not especially impressed by this gunslinger's reputation decide to hold out for a higher price to see if he'll pay it.
For either or both reasons, he'll end up paying a hefty "control premium" before he can install a new sheriff/management.
This, of course, raises the bar for the new management. In order for the entrepreneur to profit, it isn't enough for the new bosses to be better than the old boss. They have to be SUFFICIENTLY better to justify the control premium he's already paid. And then some.
Not surprisingly, then, there's a lot of interest in developing ways to take over the control of a company without paying a control premium.
From one point of view, waging a proxy battle for control of the board of directors is exactly that.
As Milton Friedman said, though: there ain't no such thing as a free lunch. Proxy fights have their own expenses and risks.
All of this has been by way of illuminating my comment yesterday that (a) CNET had created a new poison pill for itself to ward off a takeover attempt and (b) that the real battle will be on the proxy front and related litigation.
CNET's present governance structure involved staggered board terms. This year, only two of the incumbents will stand for re-election. That's not enough to change control othe company. Still, on January 7, New York based hedge fund JANA Partners announced that it will nominate Paul Gardi and Santo Politi for those two seats.
Also, JANA announced it will seek an expansion of the size of the board of directors from eight to 13. This is the "loophole" I mentioned yesterday. If it can get that increase, then the company will have to hold an election for the five newly created seats as well as for the two common up for a vote anyway. Seven seats on the hypothetical board of 13 will of course be a majority.
Will CNET have to hold an election for seven seats, or only for two? We'll go a bit further into this question tomorrow.
By hypothesis, the acquired company will be of greater value with the new bosses, and the market price of the stock will soon reflect that higher value. So in the imagery of the old west, our entrepreneur, having ridden into town on a capital-markets horse and installed the new sheriff, sells his interest in the town for a profit, and rides back out.
The problem is that its difficult to sneak up on a town/company like that. The increase in the company stock price might come too soon. Suppose a particular turn-around artist has gained a reputation for previous gun-slinging escapades of this sort. When he starts buying stock in a new company, other market participants, checking with EDGAR, learn of this and the stock becomes more valuable immediately on the expectation that he'll continuing buying and then work his magic.
Or it becomes more valuable simply because even market participants not especially impressed by this gunslinger's reputation decide to hold out for a higher price to see if he'll pay it.
For either or both reasons, he'll end up paying a hefty "control premium" before he can install a new sheriff/management.
This, of course, raises the bar for the new management. In order for the entrepreneur to profit, it isn't enough for the new bosses to be better than the old boss. They have to be SUFFICIENTLY better to justify the control premium he's already paid. And then some.
Not surprisingly, then, there's a lot of interest in developing ways to take over the control of a company without paying a control premium.
From one point of view, waging a proxy battle for control of the board of directors is exactly that.
As Milton Friedman said, though: there ain't no such thing as a free lunch. Proxy fights have their own expenses and risks.
All of this has been by way of illuminating my comment yesterday that (a) CNET had created a new poison pill for itself to ward off a takeover attempt and (b) that the real battle will be on the proxy front and related litigation.
CNET's present governance structure involved staggered board terms. This year, only two of the incumbents will stand for re-election. That's not enough to change control othe company. Still, on January 7, New York based hedge fund JANA Partners announced that it will nominate Paul Gardi and Santo Politi for those two seats.
Also, JANA announced it will seek an expansion of the size of the board of directors from eight to 13. This is the "loophole" I mentioned yesterday. If it can get that increase, then the company will have to hold an election for the five newly created seats as well as for the two common up for a vote anyway. Seven seats on the hypothetical board of 13 will of course be a majority.
Will CNET have to hold an election for seven seats, or only for two? We'll go a bit further into this question tomorrow.
Sunday, January 13, 2008
What is CNET?
CNET Networks (Nasdaq: CNET) announced on Friday that its board has adopted a poison pill plan in order to try to thwart any unfriendly takeover.
Well, of course, they didn't announce it using the phrase "poison pill." Its a sharehlders rights plan, naturally! But if it scares off bidders who might otherwise have offered shareholders a control premium for their shares, this assertion of their rights might seem empty to some of them.
CNET's corporate website (not to be confused with their consumer website) is:
here.
They provide internet content and games under a variety of brand names. They've had a good deal of success at this, but 2007 was a very choppy year for them in terms of stock price.
At any rate, the new poison pill is a move to protect a flank, but it doesn't represent the front line in CNET management's efforts to preserve corporate autonomy. The front line is a proxy contest along with related litigation.
CNET's bylaws are confusingly written, so it isn't clear whether the activists who want to take control through proxy votes can do so in a single election or not. The board is staggered, so that one would usually answer, "not." Yet there maybe a loophole in the staggering. And there may be a loophole in the loophole.
I'll see if I can make it all clear over the next couple of days.
Well, of course, they didn't announce it using the phrase "poison pill." Its a sharehlders rights plan, naturally! But if it scares off bidders who might otherwise have offered shareholders a control premium for their shares, this assertion of their rights might seem empty to some of them.
CNET's corporate website (not to be confused with their consumer website) is:
here.
They provide internet content and games under a variety of brand names. They've had a good deal of success at this, but 2007 was a very choppy year for them in terms of stock price.
At any rate, the new poison pill is a move to protect a flank, but it doesn't represent the front line in CNET management's efforts to preserve corporate autonomy. The front line is a proxy contest along with related litigation.
CNET's bylaws are confusingly written, so it isn't clear whether the activists who want to take control through proxy votes can do so in a single election or not. The board is staggered, so that one would usually answer, "not." Yet there maybe a loophole in the staggering. And there may be a loophole in the loophole.
I'll see if I can make it all clear over the next couple of days.
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