March 2, 2018

“Fix-It” Proposals: They’re Baaaaccck!

As Broc blogged several times last year (here’s the latest), “fix-it” proposals – shareholder proposals seeking changes to proxy access bylaws – were a hot topic last proxy season. This recent blog from Cooley’s Cydney Posner says that they’re front & center again in 2018.

After much back & forth, it appeared that by the end of last proxy season the no-action letter process had charted a course that would allow proponents to avoiding exclusion of fix-it proposals on the basis of substantial implementation. As this excerpt notes, fix-it proponents are back this year, & they’re following that course:

The SEC Staff took a uniform no-action position allowing exclusion of these fix-it proposals. But the proponents were persistent and, in 2017, submitted to H&R Block a different formulation of a fix-it proposal that requested only one change — elimination of the cap on shareholder aggregation to achieve the 3% eligibility threshold, as opposed to simply raising the cap to a higher number.

This time, the Staff rejected H&R Block’s no-action request. In essence, it appears that the Staff believes that a lower cap on aggregation could “substantially implement” a higher cap, but the removal of a cap entirely is a different animal that could not be substantially implemented by the lower cap. This proxy season, the proponents have latched onto—and even expanded—the new formulation and have continued to find success in preventing exclusion.

For example, in BorgWarner (2/9/18), John Chevedden submitted a proposal requesting elimination of the cap on aggregation of shareholders to satisfy the 3% minimum ownership threshold, as well as changing the minimum number of proxy-access candidates to two, if the board size is under 12, and three if it is over 12. (The proposal doesn’t address the 12-person board.) In this instance, the company’s existing aggregation cap was 25, and the existing number of directors that could be nominated through proxy access was the greater of 20% of directors in office or two.

Chevedden & Harrington Investments submitted a similar proposal to Alaska Airlines. In both cases, the Corp Fin Staff rejected arguments that the proposals could be excluded on the basis that they had been substantially implemented.

Shareholder Proposals: About Those Airline Seats. . .

Is there anybody who doesn’t find the airlines’ unceasing efforts to shrink the seats & leg room on planes absolutely infuriating? This recent blog from UCLA’s Stephen Bainbridge flags a shareholder proposal designed to put a stop to this practice.

The proposal – which was submitted to American, Delta & United Continental by an organization called “Flyers Rights Education Fund” – calls for the companies to report on the “regulatory risk and discriminatory effects of smaller cabin seat sizes on overweight, obese, and tall passengers.” It also calls for them to address “impact of smaller cabin seat sizes on the Company’s profit margin and stock price.”

So what are the chances of this resolution prevailing? Not good. American & United Continental have already filed no-action requests with the Staff seeking to exclude these proposals under the ordinary business exception – and the blog notes that the airlines’ arguments are likely a winner:

American’s letter states that it is relying on the exemption under Rule 14a-8(i)(7) that allows exclusion of proposals that deal “with a matter relating to the company’s ordinary business operations.” The letter relies on the SEC’s Exchange Act Release No. 34-40018 (5/21/98):

The SEC stated in the 1998 Release that the policy underlying the ordinary business exclusion is based on two considerations:

– First, whether a proposal relates to “tasks that are so fundamental to management’s ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight;” and

-Second, whether a “proposal seeks to ‘micro-manage’ the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.”

The Staff has consistently agreed that proposals relating to a company’s sale and marketing of its products or services, or seeking to dictate management’s day-to-day decisions regarding the selection of products or services offered, implicate a company’s ordinary business operations and may be excluded pursuant to Rule 14a-8(i)(7).

While he too bemoans the constant shrinking of airline seats, Prof. Bainbridge concludes that American Airlines’s argument is “clearly correct.”

Brother, Can You Spare $100 Billion?

Check out this Reuters article – it says that banks are “salivating” over the opportunity to lend $100 billion to fund Broadcom’s hostile takeover of Qualcomm. Here’s an excerpt with some of the details on what would be the largest syndicated loan of all time:

Broadcom’s $100 million loan package backing its proposed $121 billion acquisition of Qualcomm, is set to become the biggest-ever syndicated loan globally if the hostile deal goes ahead.

Twelve banks are providing the financing, which is on track to beat the prior record of $75 billion issued by Brazilian/Belgian brewer AB Inbev to finance its purchase of rival SAB Miller in 2015, according to Thomson Reuters LPC data.

How’s the pricing? Well, for the most expensive piece of the commitment – a proposed 5-year, $20 billion term loan – it’s 137.5 bps over LIBOR. Since the 12-month LIBOR rate is currently hovering around 2.5%, this means Broadcom’s borrowing $100 billion at about the same rate that you’d pay for a 5-year auto loan.

John Jenkins