Entries categorized as ‘Activist Investing’

Spencer Capital leads charge against VXGN board (via Greenbackd.com)

August 25, 2009 · Leave a Comment

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Spencer Capital has filed preliminary proxy documents to remove the board of VaxGen Inc (OTC:VXGN). In the documents, Spencer Capital, which leads a group of investors calling themselves “Value Investors for Change,” call out VXGN’s board on its “track record of failure and exorbitant cash compensation”:

VaxGen does not have any operations, other than preparing public reports. The Company has three employees, including the part-time principal executive officer and director, and four non-employee directors. Since the Company’s failed merger with Raven Biotechnologies, Inc. in March 2008, the Board has publicly disclosed that it would either pursue a strategic transaction or a series of strategic transactions or dissolve the Company. The Company has done neither. In the meantime, members of the Board have treated themselves to exorbitant cash compensation. Until July 2009, two non-employee members of the Board were paid over $300,000 per year in compensation. The principal executive officer will likely receive over $400,000 in cash compensation this year.

We’ve been following VXGN because it is trading at a substantial discount to its net cash position, has ended its cash-burning product development activities and is “seeking to maximize the value of its remaining assets through a strategic transaction or series of strategic transactions.” Management has said that, if the company is unable to identify and complete an alternate strategic transaction, it proposes to liquidate. One concern of ours has been a lawsuit against VXGN by its landlords, in which they sought $22.4M. That lawsuit was dismissed in May, so the path for VXGN to liquidate has now hopefully cleared. The board has, however, been dragging its feet on the liquidation. Given their relatively high compensation and almost non-existent shareholding, it’s not hard to see why.

VXGN has now also attracted the attention of BA Value Investors, which has disclosed an activist holding and called on VXGN to “act promptly to reduce the size of the board to three directors; reduce director compensation; change to a smaller audit firm; terminate the lease of its facilities; otherwise cut costs; make an immediate $10 million distribution to shareholders; make a subsequent distribution of substantially all the remaining cash after settling the lease termination; distribute any royalty income to shareholders; and explore ways to monetize the public company value of the Issuer and use of its net operating losses.”

VXGN is up 25.0% since we initiated the position. At its $0.60 close yesterday, it has a market capitalization of $19.9M. We last estimated the company’s liquidation value to be around $25.4M or $0.77 per share. VXGN has other potentially valuable assets, including a “state-of-the-art biopharmaceutical manufacturing facility with a 1,000-liter bioreactor that can be used to make cell culture or microbial biologic products” and rights to specified percentages of future net sales relating to its anthrax vaccine product candidate and related technology. The authors of a letter sent to the board on July 14 of this year ajudge VXGN’s liquidation value to be significantly higher at $2.12 per share:

Excluding the lease obligations, the net financial assets alone of $37.2 million equate to $1.12 per share. The EBS royalties (assuming a 6% royalty rate and a $500 million contract as contemplated by NIH/HHS and EBS) of $30 million and milestones of $6 million total $36 million of potential additional future value (based clearly on assumptions, none of which are assured), or $1.09 per share. Adding $1.12 and $1.09 equals $2.21 per share.

Spencer Capital’s proxy solicitation is a welcome relief, and, with any luck, we will see a liquidation of VXGN soon, either at the hands of the present board, or by Value Investors for Change.

The preliminary proxy statement sets out the Value Investors for Change group’s “Reasons for the solicition” thus:

Even though VaxGen does not have substantial operations, Value Investors for Change believes that the Company has valuable assets, consisting of cash and net operating loss carryforwards (“NOLs”). We believe these assets should be unlocked for the benefit of shareholders, rather than consumed over time by the current Board.

We do not believe the members of the current Board are acting in the best interests of stockholders. Since the Company’s failed merger with Raven Biotechnologies, Inc. in March 2008, the Board has publicly disclosed that it would either pursue a strategic transaction or a series of strategic transactions or dissolve the Company. The Company has done neither. Instead, the Board has overseen the consumption of a large portion of the Company’s assets while paying itself exorbitant compensation. In addition, the Board’s interests are not aligned with the stockholders, as displayed by their miniscule equity stake in the Company.

Consumption of Assets

Since discontinuing its operations, the Company has consumed a significant amount of assets. According to its most recent quarterly report on Form 10-Q, since June 30, 2008, the Company’s assets have decreased by $31.7 million, or 45%. Since December 31, 2008, the Company’s assets have decreased by over $3.5 million, or 8.4%.

In addition, the Company recorded $3.6 million in general and administrative expenses during the six month period ended June 30, 2009. Much of this expense consisted of cash compensation to the Board.

Exorbitant Board Compensation

Despite the relatively simple task of overseeing a shell company and conducting an ordinary sale process, the Board has paid itself inordinately high compensation. While it is difficult to envision the rationale for the high cash compensation awarded to the Chairman Kevin Reilly and Franklin Berger, the most excessive portion of the director compensation consisted of the payments to the non-employee members of the Strategic Transactions Committee. Beginning in May 2008, Board members Lori F. Rafield and Paul DeStefano received $20,000 per month and $15,000 per month, respectively, for service on the Strategic Transactions Committee, which was formed to identify, review and evaluate potential strategic transactions and alternatives. Within a few months, these directors increased their compensation to $32,000 and $27,000 per month, respectively. This compensation is extraordinarily excessive.

Insignificant Board Equity Ownership

The members of the Board hold very few shares of the Company’s common stock. Most of the Board’s beneficial ownership holdings consist of underwater stock options. The following table describes the stockholdings of the Board, as set forth in the 2008 annual report, excluding options.

This Board has failed to take the steps we believe are necessary to preserve and enhance stockholder value. We believe the actions taken by the Board indicate that they are more interested in acting in their own self-interest rather than in the best interests of stockholders.

Value Investors for Change urges you to vote FOR the Fund’s proposal to elect the Nominees on the enclosed WHITE proxy card, thereby ending this disregard for stockholder interests. Vote to elect a new slate of directors who are willing to stand up for the interests of all stockholders and work to maximize stockholder value.

The members of the Board hold very few shares of the Company’s common stock. Most of the Board’s beneficial ownership holdings consist of underwater stock options. The following table describes the stockholdings of the Board, as set forth in the 2008 annual report, excluding options.

Categories: Activist Investing
Tagged: shubin stein, Spencer Capital

Carl Icahn Lecture

June 2, 2009 · Leave a Comment

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We recently ran across a lecture given by Carl Icahn at Yale University. In the lecture, Icahn shares his experiences on bull and bear markets, activism, and corporate governance. An interest part of the lecture is when Icahn shares his core investment philosophy: buy cheap companies based on asset value. Icahn also shares his thoughts on “anti-darwinism” in the corporate ladder. The lecture is posted below.

Categories: Academic · Activist Investing
Tagged: activism, carl icahn, Investing

Pershing Square Town Hall Meeting Presentation

May 12, 2009 · Leave a Comment

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Pershing Square Capital Management LP. made its case to replace Target’s Board on a meeting held in Manhattan on May 11, 2009. Click on the slide to view Bill Ackman’s presentation to shareholders and to read about Pershing’s board nominees.












Bloomberg interviewed Bill Ackman yesterday to discuss his proxy fight:

Categories: Activist Investing · News
Tagged: bill ackman, Pershing Square, target

Bill Ackman To Make Case For Changing Target Board

May 11, 2009 · Leave a Comment

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One of Wall Street’s most high-profile investors is focusing his firepower on Target Corp., whose flailing performance in the recession has left it with a big bull’s eye on its back.

Hedge-fund mogul Bill Ackman has called a meeting in Manhattan Monday to introduce his slate of five dissident directors — including himself — that he is asking shareholders to elect May 28.

Mr. Ackman says his candidates will bring new ideas to the discount retailer and relevant expertise to a board he describes as slow to make critical decisions. “We’re not talking about revolution, but evolution,” he said in an interview. “We think we can make the company better.”

Not long ago, the challenge would have drawn little interest; Minneapolis-based Target was a darling of investors, out-selling rivals such as Wal-Mart Stores Inc., which struggled to copy Target’s cheap-chic clothing and eye-catching ads.

A 58% plunge in Target’s stock from September to March might make it easier for Mr. Ackman and his Pershing Square Capital Management to grab the attention of unhappy shareholders eager for change. Despite a recent rebound that has lifted the stock of most retailers, Target shares remain down more than 39% from their peak of about $70 in July 2007.

One weapon Mr. Ackman is deploying in the proxy battle is Wal-Mart, which has managed to post relatively robust growth despite the recession.

In past downturns, Target’s sales gains have trailed Wal-Mart by a percentage point or two, but since autumn that spread has widened to up to six percentage points. Some retail analysts have pointed out that Target’s business began to slow before the recession, evidence that, among other things, some competitors that copied its low-priced designer strategy might be stealing its thunder.

“Since the fourth quarter of 2007, Wal-Mart has outperformed Target on key operating metrics, including growth in retail revenues, same-store sales, and earnings per share,” Mr. Ackman wrote in a May 1 letter to Target shareholders promoting his board slate. On Thursday, Wal-Mart announced its U.S. discount-store sales in April shot up by 5.9%, while Target reported an anemic 0.3% rise.

Mr. Ackman has had some success in previous board battles. In 2006, he helped convince Wendy’s International Inc. to sell off its Tim Horton’s doughnut and coffee chain. In 2007 he tried to oust the entire board of Ceridian Corp., a payroll company, and replace it with an alternative slate. Pershing Square agreed to a compromise that gave it four seats on the board; Ceridian later was sold to buyout firm Thomas H. Lee Partners and insurer Fidelity National Financial Inc.

Target is taking Mr. Ackman’s proxy battle seriously. It has slammed him in a flurry of news releases and letters to shareholders, and defended its board, which includes former executives of General Mills Inc., Quaker Oats Co. and the current chair of Wells Fargo & Co., as having all the right experience to guide the company.

Target Chief Executive Gregg Steinhafel contends Mr. Ackman’s bid for board seats is a ploy for short-term stock gains. The activist’s proxy fight in Target, he wrote in a May 6 letter to shareholders, “is not aligned with our other shareholders.”

Standard & Poor’s Ratings Services recently described the battle, which Target figures will cost it more than $11 million, as “a distraction” for the retailer’s management and board.

Mr. Steinhafel argues a turnaround is already under way. Target is expanding its grocery offerings to more stores, and retooling its advertising campaign to emphasize low prices. “Getting better at what we do is our No. 1 priority,” Mr. Steinhafel said in an interview.

The Target strategy seems to be too little, too late to satisfy Mr. Ackman. He dedicated one of his hedge funds to Target’s stock, and lost $1.6 billion of investors’ money, forcing him in February to apologize for the fund’s “dreadful” performance over the previous two years. Today, according to his proxy material, his funds own about 3.3% of the company’s 752.3 million shares outstanding, and call options on an additional 4.5%.

After two years of prodding Target to change its business strategy, Mr. Ackman in March launched his proxy battle. His nominees include Jim Donald, former chief executive of Starbucks Corp. and a longtime supermarket executive; Richard Vague, who has run major credit-card firms; Michael Ashner, chairman of Winthrop Realty Trust, and Ronald Gilson, an expert in corporate governance who teaches at the law schools of Stanford University and Columbia University.

Last year, Mr. Ackman successfully pushed Target management to sell a stake in its credit-card portfolio, and he’s still insisting it unload the rest. Target has signaled it is willing to do so when the time is right. But he wasn’t able to convince Target management to spin off land it owns under its stores to create a publicly traded real-estate investment trust. Target deemed the move too costly, and said it could undermine the company’s credit ratings.

How investors will respond to Mr. Ackman’s proxy challenge remains to be seen. The two major firms that advise institutional investors on proxy votes, Risk Metrics Group and Proxy Governance Inc., said they will issue recommendations later this week.

But some shareholders are receptive. Wayne Kozun, manager of the Ontario Teachers’ Pension Plan, which has assets of $85 billion (Canadian) and a small holding in Target, says he thinks Mr. Ackman’s board candidates have a shot at succeeding.

“I just think it is good to see shareholders have more choice,” said Mr. Kozun, who added that his fund has not yet decided how it will vote.


Note: To view webcast of Bill Ackman’s town hall meeting go to www.tgttownhall.com at 11 am ET today.

Categories: Activist Investing · News · Value Investing
Tagged: Activist, bill ackman, Pershing Square

The State of Shareholder Activism

May 8, 2009 · Leave a Comment

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The Harvard Law School web log has posted a Thompson Reuters research document discussing the state of shareholder activism. It provides a good summary of what transpired in 2008.

According to the document,  there were a total of 34 activist situations during the last four quarters. This compares to a total of 61 in 2007. While sluggish economic conditions may explain a decrease in activity toward the back half of the year in 2008, it is unclear what caused the total number of activism cases in the first half of the year to drop when compared to the first half of 2007. Might activists have foreseen trouble in advance of the marked economic decline?

quarterly breakdown

The extreme drop off in activity in the fourth quarter of 2008 naturally leads one to wonder whether or not that trend will spill over into the first quarter of 2009. On the one hand one might argue that the severe sell-off in the equity markets might cause activists to focus more on investments they already have, rather than launching new battles. On the other hand, one might argue that the decline in share prices might exacerbate investor anxiousness and actually embolden activist type investors. Based upon the results in the fourth quarter and the lack of available financing in the marketplace (which might be used to fund acquisitions) our assumption is that the former argument will prove true. We anticipate that the number of activist cases, and perhaps the size of the targets will remain low in Q1 2009 when compared to the prior year.


In the past, activist investors have aggressively sought board seats as a means of exerting their influence. This trend continued in the fourth quarter of 2008. In fact, in both instances of activism in the period board seats are/were sought. For the full year 2008 board seats were clearly the top demand as well. This is consistent with prior quarterly studies that we have conducted. Other demands included general measures to enhance shareholder value, and a split of the target company. Note however that even those cases where the activist sought to buy or sell the company they also tended to seek board seats, perhaps as a means of obtaining leverage.

Activist demands 2008


Of the two cases of activism in the fourth quarter of 2008 one has been resolved in the activist’s favor.(Sellers Capital won board seats at Premier Exhibitions.) However, one is still pending (ANS Investments vs. Magellan Petroleum). That is, no party has prevailed. For the full year 2008 activists have been successful in achieving their goals 29% of the time. However, the target company has been successful in fending off the activist 24% of the time. Compromise was reached in 38% of the cases, and to date 9% have not been resolved. In short, we believe the trend toward compromise will continue going forward. Our logic is that boards and activists realize that a protracted proxy battle can be time consuming, and cost a great deal of money. It also may have an adverse impact on the share price.



Consumer Discretionary and Information Technology companies were among the top targets. Consumer Discretionary companies have consistently been among the top targets during this time period. The sector’s prospects for future earnings and/or cash flow growth may be a lure for activist firms. Energy related companies were near the bottom of the list. Perhaps this is because activists didn’t see many opportunities to unlock additional value. With energy prices waning, however, perhaps this will change in 2009.



Well-known activist Carl Icahn made headlines in the second and third quarter as he fought for seats on Yahoo’s board. Icahn ultimately captured three board seats. Yahoo is in the midst of a turnaround and recently hired a new chief executive. Also early in the second quarter, Motorola said it will support two of Carl Icahn’s four proposed board nominees, settling a proxy battle. Meanwhile, Wattles Capital Management reportedly pushed electronics retailer Circuit City to sell itself. Unfortunately Circuit City filed for bankruptcy late in the year. In other activist news, Riley Investment Management sought board seats at Zilog, a technology concern. Zilog ultimately announced that it would appoint a member of the Riley team to its board. Also, JMB Capital Partners made headlines in its pursuit of board representation at Maguire, a California based Real Estate Investment Trust or REIT. Finally Pershing Square proposed that retailer Target spin off land it owns as a means of unlocking potential shareholder value. Target reportedly rejected the idea.

The original document can be found here.

Categories: Academic · Activist Investing · Value Investing
Tagged: Activist Investing, carl icahn, Pershing Square, shareholder activism

VNDA Surges on FDA Approval; ValueHuntr Closes Position

May 7, 2009 · Leave a Comment

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Shares of Vanda Pharmaceuticals Inc. skyrocketed today after the company said the FDA approved its schizophrenia drug Fanapt. Vanda plans to begin shipping the drug to pharmacies later this year. The news sent Vanda shares surging nearly tenfold to $10.00 from $1.08. We purchased the stock at $0.80/share, which translates into a whopping 1150% gain, the best individual gain we have had so far.

VNDA was the very first addition to the ValueHuntr Portfolio. As we discussed in our March 6, 2009 article, our investment in VNDA was a rare win-win scenario because the company, trading below net-cash at the time of our purchase, would have likely been liquidated had the FDA not approved its Fanapt product, which would have resulted in a 100% gain at liquidation.

Fanapt, or iloperidone, was more effective than a sugar pill in controlling symptoms of schizophrenia in clinical testing. The drug is an atypical antipsychotic, a group of relatively new drugs. Other drugs in the group include risperidone, which Johnson & Johnson markets as Risperdal, and Eli Lilly & Co.’s Zyprexa.

Approval for the drug was delayed in July because the Food and Drug Administration concluded Fanapt was too similar to drugs already on the market. The agency also required more testing at the time. The most common side effects for Fanapt in clinical testing were dizziness, dry mouth, fatigue, nasal congestion, sleepiness, low blood pressure, rapid heartbeat, and mild weight gain.

Tang Capital Partners, LP (“TCP”) has ended its proxy contest by withdrawing its nominations of director candidates for election to Vanda’s Board of Directors and its stockholder proposal to liquidate the Company. TCP had previously notified the Company of its intention to solicit proxies for the election of two of its candidates to the Vanda Board at the Company’s 2009 Annual Meeting and for its proposal that the Board take action to liquidate the Company.

Kevin Tang, the managing director of the general partner of TCP, notified Vanda of TCP’s intention not to pursue a proxy contest on May 6, 2009 in an email to Vanda’s Chief Executive Officer, Mihael H. Polymeropoulos, M.D. and Chairman of the Board, Argeris N. Karabelas, Ph.D.

Categories: Activist · Activist Investing · Update · Value Investing
Tagged: Kevin Tang, Vanda Pharmaceuticals, VNDA

Update on Facet Biotech Corporation: Roderick Wong Withdraws Board Nominees

May 5, 2009 · 1 Comment

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Facet Biotech Corporation (FACT) and Roderick Wong, M.D., jointly announced on Monday that based on productive discussions between Facet and Dr. Wong, Dr. Wong has withdrawn his slate of director nominees for election at Facet’s 2009 annual meeting of stockholders and will not present, recommend or move for the election of any of the nominees he had submitted for election.

Faheem Hasnain, president and chief executive officer of Facet, said, “We thank Dr. Wong for raising important concerns held by some of Facet’s stockholders and advocating for these stockholders. Our Board values his insights regarding the future of the company and we look forward to an ongoing constructive dialogue with Dr. Wong.”

Dr. Wong said, “I am pleased to have brought this situation to an amicable conclusion. Our discussions have focused on issues that are critical to Facet’s success and I appreciate the time and attention that the company has devoted to our discussions.”

In a conference call with Facet’s management on March 26, 2009, Roderick Wong had expressed dissatisfaction over the company’s business plan and burn rate, and suggested dividend payment of up to $15 per share and sale of the remaining assets of the company. Additionally, Wong had proposed the appointment of an alternate slate of five directors, including Wong himself, Philip R. Broenniman, Robert L. Chapman, Jr., David Gale, and Bradd Gold.

Categories: Activist Investing · Update · Value Investing
Tagged: Activist Investing, facet biotech, roderick wong

Activists Must Adjust Their Aim

April 27, 2009 · Leave a Comment

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(April 27, 2009 WSJ)


By Gregory Zuckerman

 Bill Ackman: Uneven at Target by Gary Hovland

It’s hard to scare a target when you are on the run yourself. But that is the awkward position in which activist investors find themselves.

Activist funds lost almost 10% in the first two months of this year, after falling almost 31% last year, according to Hedge Fund Research. That’s worse than other hedge funds and in line with the overall market, suggesting that many are simply long-only investors who take concentrated positions in single stocks.

Meanwhile, many of the largest activists are dealing with unhappy investors who are fleeing their hedge funds. A focused fund started by William Ackman succeeded in getting Target to buy back shares, among other things. But Target has resisted some of his other suggestions. And amid the market downturn, Mr. Ackman’s Target fund has lost more than 50% since its launch.

Despite such setbacks, activists might again be trying to flex their muscles, pumped up by gains of 9.3% in March. Carl Icahn has been pushing top executives at Amylin Pharmaceuticals to trim waste and not resist any possible sale. Smaller hedge funds such as Ironfire Capital are preparing to launch campaigns, according to people familiar with the matter.

The question is what playbook will work in today’s environment. Activists have spent much of the past few years pushing companies to take on more debt and pay out cash to shareholders. It turns out that many of the companies were correct to try to conserve cash for a rainy day, given the tsunami in the markets and economy that subsequently resulted. Companies should easily shrug off pressure to return cash right now.

Another activist favorite, pressuring companies to break up or sell themselves, also could be a challenge. Financing markets remain in disarray and valuations are distressed in many cases.

And such attempts have included notable failures. Investors jumped into Yahoo stock when Mr. Icahn last year pushed the company to sell to Microsoft, figuring he could bridge the gap between the two sides. But they still are dragging their feet, and Yahoo is down more than 40% since he got involved.

A more fruitful area could be on forcing cost cuts. Activists have often targeted entrenched and overpaid managers they believe are looking after themselves rather than shareholders. With many executives receiving generous compensation packages, even as their companies struggle, there could be plenty fodder for activists. A range of academic research suggests that hedge-fund activists have had a positive impact in areas such as reining in executive pay and perks.

Research also shows that activists can have a positive impact on long-term share prices, although some studies cover bull-market periods when companies could be successfully prodded to sell themselves or certain assets and pile on debt to boost payouts. In today’s leaner times, activists have their work cut out demonstrating that they aren’t a spent force.


Categories: Activist Investing · News
Tagged: Activist Investing, bill ackman, Pershing Square, target, Value Investing

New SEC Rules Favor Activist Investors

April 24, 2009 · Leave a Comment

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 An article in today’s Wall Street Journal explores how activist investors will benefit from a change in SEC rules banning brokers to vote on their client’s shares. According to the article, brokers have typically voted in favor of standing management and board members thanks to the rule put in place in 1937. A ban to this practice would give activist investors more power by eliminating these management-friendly votes and would allow them to get closer to a majority.

Source: Change to Win, a labor group that opposes Mr.Lewis's re-election

Source: Wall Street Journal



SEC Plans to End Broker Vote Rule, in Win for Activists


In a major win for activist investors, the Securities and Exchange Commission plans to toss out decades-old rules in a move that will give activists significantly more power to determine who sits on corporate boards.

The rule change centers on a technical issue: Whether brokers are allowed to vote on their clients’ behalf in director elections. Since 1937, the brokers have been able to vote their clients’ shares, and have typically voted in favor of standing managements and boards.

But starting in January, the SEC will change those standards, say people familiar with the matter. The SEC is expected to announce the rule change as early as next week, these people say. Brokers won’t be able to vote their clients’ shares. Since many small shareholders simply don’t vote, that will give more power to institutional and activist shareholders who do.

The change has long been sought by large shareholders and activists who want to make it easier to dump underperforming boards. They have been stymied, however, by the “broker vote” standards, which diluted their influence.

Investors such as Carl Icahn have long used proxy fights to put pressure on companies and their managements. By eliminating broker votes, they will have an easier time at winning the voting majority necessary to throw out board members. The changes will be most acute at companies with large mom-and-pop shareholder bases. The rule change won’t apply to instances where an activist runs a competing slate of directors.

This month’s fight over the fate of Bank of America Corp. Chief Executive and Chairman Kenneth Lewis provides a test case for how the changes might affect a board election. In standing for election, Mr. Lewis faces opposition from several large investors, including teachers pension fund TIAA-CREF. A separate proposal would require the bank to split the chairman and CEO roles, effectively stripping Mr. Lewis of at least one of his titles.

Change to Win, a coalition of labor unions opposed to Mr. Lewis’ re-election, predicts that 22% of votes scheduled to be cast at the bank’s shareholders meeting will be “broker votes,” based on trends established during the prior two years. If Mr. Lewis wins just over a third of the remaining votes at the meeting, he would be re-elected, according to the group’s analysis.

“Ken Lewis and other directors may only be elected as a result of the broker vote,” said Michael Garland, director of value strategies at Change to Win’s investment arm.

Mr. Lewis has defended his performance and told board members he intends to remain as CEO at least until the financial crisis is over. The bank has said it doesn’t believe a split of the top roles is the right move. It declined to comment for this article.

The move is the first of what is expected to be a series of changes under way at the SEC. The broker vote change was first proposed in 2006, but it languished under the previous SEC chief and was never finalized.

Reviving the broker vote proposal was one of SEC Chairman Mary Schapiro’s first moves since taking the helm in January. The issue was delegated to the SEC staff to approve and won’t require the five commissioners to weigh in. The SEC is expected to take up other issues to expand shareholders’ rights next month.

Several companies, including General Electric Co., Pfizer Inc., J.P. Morgan Chase & Co. and Exxon Mobil Corp., recently wrote letters to the SEC urging the agency to hold off on eliminating the broker vote rule change until the agency undertakes a broader review of proxy rules.

Some companies say eliminating broker votes will make it harder to establish a quorum at shareholder meetings and require costly efforts to encourage voter turnout. Investors call that a red herring.

Under current rules, investors must instruct their brokers on how to vote at least 10 days before the election.

If there are no instructions, brokers are entitled to vote however they wish on “routine” items. Generally brokers vote for management, on the theory that any shareholder who opposed the company’s position would give instructions. In the U.S., about 80% of investors’ stocks are held at brokerage accounts.

Until now, uncontested director elections have been considered “routine.” The SEC rule change is expected to say that such elections are no longer routine items and brokers can’t vote the stock either way without shareholder instructions.

“This is a huge victory for the investor community,” said Ann Yerger, executive director of the Council for Institutional Investors, a Washington organization that represents pension funds holding $3 trillion in assets.






Categories: Activist · Activist Investing · News
Tagged: Activist, SEC, Shareholder Rights

Facet Biotech Corporation (NASDAQ: FACT)

April 15, 2009 · 3 Comments

We are adding Facet Biotech Corporation to our ValueHuntr Portfolio. FACT is a company with a market cap of $239M ($9.72/share) with $295M ($12.00/share) of net-cash as of December 31, 2008. On December 18, 2008, Facet Biotech completed its spin-off from PDL BioPharma, Inc. (PDL). PDL capitalized Facet with $405 million in cash and cash equivalents and contributed to Facet its biotechnology operations and related assets, including four clinical-stage programs, research and development capabilities and protein engineering technology assets.  Our estimates indicate FACT is worth at least $14/share at liquidation, which means the company is currently trading at a substantial discount to its intrinsic value.




FACT is a biotechnology company focused on developing therapeutics for cancer and immunologic diseases. Its products include Daclizumab, Volociximab, Elotuzumab, PDL192, and PDL241. Daclizumab is a humanized monoclonal antibody, with a potential in a range of inflammatory diseases, including multiple sclerosis. It can be used as a maintenance therapy for organ transplant. Volociximab is a chimeric monoclonal antibody, with a potential in treating a range of solid tumors and its role in angiogenesis also aid in the treatment of age related macular degeneration (AMD). Elotuzumab is a humanized monoclonal antibody used to treat multiple myeloma. PDL192 is a humanized monoclonal antibody used to treat tumor indications including pancreatic, colon, lung, renal, breast, head, and neck cancers. PDL241 is a humanized monoclonal antibody, with a potential in immunologic diseases. In January, following the completion of a previously announced strategic business review, Facet announced that it would restructure to focus in the therapeutic area of oncology and significantly reduce its operating costs.




On December 18, 2008, Facet Biotech completed its spin-off from PDL BioPharma, Inc. (PDL). PDL capitalized Facet with $405 million in cash and cash equivalents. However, the company is burning cash at a very rapid rate. The company anticipates cash utilization of approximately $95 to $100 million for 2009, which is a reduction from the $110 million previously announced in January of 2008. FACT management also anticipates 2009 total costs and expenses of $140 to $160 million, which includes $22 to $25 million of anticipated depreciation, amortization and stock-based compensation, as well as approximately $4 million in anticipated employee-related restructuring charges related to the company’s previously announced restructuring activities. We estimate that the company is worth at least $14/share at liquidation, which indicates a potential 46% gain at liquidation relative to the company’s current market price.





In a conference call with Facet’s management on March 26, 2009, Roderick Wong expressed dissatisfaction over the company’s business plan and burn rate, and suggested dividend payment of up to $15 per share and sale of the remaining assets of the company. Additionally, Wong proposed the appointment of an alternate slate of five directors, including Wong himself, Philip R. Broenniman, Robert L. Chapman, Jr., David Gale, and Bradd Gold.  The five nominees collectively own 124,828 shares of Facet, or about 0.5% of the company, and would replace the entire 5-member board FACT currently has in place.

In an email to employees, Facet CEO Faheem Hasnain shared his views regarding Wong’s proposal and it is clear that he disagrees with Wong’s plans:

Dear Facet Team Members,

As you may have seen, a press release was issued by one of our stockholders yesterday. The stockholder proposed an alternate slate of directors for the Facet board, in advance of our annual stockholder’s meeting in May, and called for the company to issue a substantial cash dividend followed by a sale of the company.  Late last week, we also received a letter from this stockholder that included his alternate director slate.  We issued a press release earlier this morning indicating we had received the nomination notice.  It is our policy to listen to all of our stockholders and our Board is in the process of evaluating the notice. Although we thoughtfully evaluate stockholder input, we believe we are headed in the right direction strategically and do not believe these proposals are currently in the best interests of the company and our stockholders.

Given all that you have endured over the last couple of years, I realize that this information may be unsettling to many of you. But let me assure that we have a solid strategy in place — our goal for Facet is to build an oncology-focused biotech company that is committed to developing drugs to improve patient lives — and we have the support of our board of directors.  The most important thing we can do is to continue to focus on our day-to-day responsibilities while working to achieve our goals.

FACT responded to Roderick Wong with the following letter:

Dear Dr. Wong:


We are in receipt of your letter dated March 26, 2009 and the accompanying notice of your intent to nominate directors at our 2009 Annual Meeting of Stockholders.  We welcome the input of our stockholders, and our Board has considered the suggestions articulated in your letter and March 30, 2009 press release.


Our Board and management remain firmly committed to increasing the value of the Company to our stockholders.  To this end, our Board has regularly evaluated the Company’s business plan as well as strategic alternatives to create value for our stockholders since the Company’s spin-off less than four months ago.  In this regard, we note the following:


-          Facet has undergone a rigorous analysis of its strategy, both in connection with our recent spin-off and subsequently.


-          Our goal has been to focus on therapeutic areas that we believe hold the greatest opportunity for us to create meaningful value for our stockholders.  As a result of our continued review and analysis, we are focusing our efforts on oncology.


-          We believe our development programs and technology capabilities represent substantial potential value for our stockholders.  Indeed, our collaborations with Bristol-Myers Squibb and Biogen Idec on certain of our development programs validate the value of these programs.  We firmly believe that by continuing to advance these and other programs, as well as our proprietary protein engineering technology platform, we can enhance value for our stockholders.


-          Furthermore, in an effort to maintain strict financial discipline, we have aggressively lowered our cost structure.  In particular, as we recently announced, we have reduced our headcount and our overall anticipated cash utilization in 2009, thereby extending the time period for which we have funding.


We believe that our current Board, comprised of four independent directors and Faheem Hasnain, our President and Chief Executive Officer, and the management of the Company have a record of working to advance the interests of all stockholders, consistent with their fiduciary duty.


Based on our strategic review and ongoing analyses, the Board believes that our current strategic plan is the right plan to build value for our stockholders.  Since we are committed to considering all alternatives to creating value, we have reviewed your proposal for the liquidation of the Company.  We have, however, unanimously concluded that the interests of our stockholders are best served by continuing to focus on executing our current strategy.  Moreover, the Board believes that the assumptions stated in your March 30 press release with regard to the Company’s ability to distribute a significant cash dividend do not properly take into account, among other things, the Company’s significant lease and other obligations, which are detailed in the Company’s 2008 Annual Report on Form 10-K.  Further, we believe that in this current economic environment, your proposals would significantly impair the Company’s ability to realize appropriate value for its existing assets.


Accordingly, we do not believe that your suggestions are in the best interests of our stockholders.  We intend to maintain an open and active dialogue with our stockholders as we continue to work to enhance stockholder value.




Brad Goodwin

Chairperson of the Board


Furthermore, Seth Klarman, managing director of The Baupost Group, nearly doubled his stake on the company from 2.7M to 4.4M shares following Wong’s proposal according to a 13D filed on April 8, 2009. Baupost is now 17.8% owner of FACT.


Disclosure:  The ValueHuntr portfolio does not represent an actual portfolio, and it is tracked for informational and educational purposes only. We do not have an actual holding in FACT. This is not a recommendation to either buy or sell any securities.

Categories: Activist · Activist Investing · Liquidation · Net Cash · Special Situations · Value Investing
Tagged: Activist, baupost group, facet biotech, FACT, roderick wong, seth klarman, shareholder activism, Value Investing