I dig it, man! I don’t think of myself as someone that likes trivia games – nor do I commute since I work at home. But after playing “Drivetime” just once, I was hooked. Same with my wife. It’s a mobile app that you play while you drive (and you can also play when not driving if you’re so inclined).
Here’s five things to know:
1. Feels like a traditional “morning commute” radio show. Drivetime uses professional voice actors (with personality & humor) as their hosts, akin to radio show hosts. The Drivetime hosts – always two at a time as they verbally jab back & forth – provide interesting facts & color commentary as they deliver the trivia questions.
2. So here’s the twist on the traditional show format: you’re a participant (ie. interacting) in the show because you’re answering trivia questions that the hosts throw out.
3. You answer questions by talking to your phone (which can be resting on the seat next to you, etc.). Most questions are multiple-choice. But occasionally there are open-ended ones. You earn points along the way depending on how well you answer the questions (values increase as the questions become harder).
4. Each time you play Drivetime, you compete against someone else (actually, three other commuters because there are three segments on the show; you compete against a new person during each segment). Either the app chooses another commuter for you (“good luck next time, Jared”) – or you can adjust your settings to go head-to-head against your friends that also have downloaded the app. You’re told how you’re progressing in the competition as you go.
Love the British dude who indicates whether you’re winning, losing or in a tie. He’s a synthetic voice known as “Miles.”
5. The bottom line – the experience is a combination of entertainment & a game. Next level stuff.
Studies show that if you’re engaged mentally while driving, there’s less risk of being in an accident (if you’re doing so in a “hands-free” manner). So Drivetime arguably makes your drive safer. Learn more in this Voicebot podcast with Drivetime’s CEO Niko Vuori…
Transcript: “Audit Committees in Action – The Latest Developments”
We’ve posted the transcript for our recent webcast: “Audit Committees in Action – The Latest Developments.”
What If the SEC’s Adopting Releases Were in Video Format?
In this ‘Bass Berry’ blog, Jay Knight notes how the FASB recently released a video explaining a new accounting standard. He wonders if the SEC would consider doing something similar. Since the FASB video is only 90-seconds long, perhaps the SEC could – but would it be worth it?
Here’s an anonymous poll so you can provide your thoughts:
Last summer, Liz blogged that Broadridge was redesigning its “Vote Instruction Form” in response to Corp Fin feedback and to provide a better user experience. The new design is now in effect – and available along with other resources on Broadridge’s website. Here’s the enhancements:
– Company name more prominent
– Larger, more identifiable control number
– Voting instructions specific to agenda
– Voting section separated for clarity
– No abbreviations of shareholder proposals
Second Circuit Holds “General Statements of Regulatory Compliance” Not Actionable
As noted in this ‘Cleary Gottlieb’ memo, the Second Circuit – in Singh v. Cigna – issued yet another strong decision rejecting the tactic of a company being sued after it announced bad news or corporate mismanagement based on general statements made by the company about its compliance with regulatory requirements or its own ethics policies and procedures.
Transcript: “Conflict Minerals – Tackling Your Next Form SD”
We have posted the transcript for our recent webcast: “Conflict Minerals – Tackling Your Next Form SD.”
Here’s something that Liz blogged about on CompensationStandards.com: One of the most frequent questions we get about this year’s pay ratio disclosure is, “How much detail is necessary if you’re not rerunning the ‘median employee’ calculation?” In other words, you’re either using the same median employee – or one of the alternates – that you identified last year. A timely blog from Stinson Leonard Street’s Steve Quinlivan provides examples from four recent filers.
You’ll see that the companies didn’t get too elaborate. All of them basically parrot Instruction 2 to Item 402(u) – i.e. they say they used the same median employee (or an alternate) since there was no change in the employee population or employee compensation arrangements that they believed would significantly change the pay ratio disclosure. And since Steve notes in this blog that he’s found zero Corp Fin comments so far on pay ratio disclosures, that’s probably just fine.
Tomorrow’s Webcast: “The Top Compensation Consultants Speak”
Tune in tomorrow for the CompensationStandards.com webcast — “The Top Compensation Consultants Speak” — to hear Mike Kesner of Deloitte Consulting, Blair Jones of Semler Brossy and Ira Kay of Pay Governance discuss these topics:
– Second year of pay ratio
– Evolution of clawbacks
– Adjustments to incentive plan actual performance or goals & goal-setting plans
– Incorporating E&S metrics into plans
– How to handle pay equity & gender/ethnicity pay gaps
– The changing role of the compensation committee
“Valley of the Boom”: Loved It
Have you seen the 6-part miniseries from National Geographic called “The Valley of the Boom“? Very well done (I don’t know why the ratings on Metacritic aren’t higher). Brought back lots of memories from the mid-90s when I earned my stripes as the “Internet guy” in Corp Fin.
It’s the most entertaining thing I’ve seen on the Internet boom. A mix of a documentary and a reenactment of how things played out at Netscape, TheGlobe.com (which was Facebook before Facebook) and a scam artist who actually had high quality video streaming before anyone else. The documentary part has remarks from those who were at Netscape & Microsoft (remember the “browser wars”?), as well as commentary from celebrities like Mark Cuban and Arianna Huffington…
We’ve been blogging about the bills in Congress seeking to change stock buybacks practices (here’s the latest). Expounding on prior research he conducted last summer, SEC Commissioner Robert Jackson sent this letter to the Senate last week providing further evidence to show that corporate insiders are using buybacks to cash out.
Here’s a MarketWatch article noting that, at a Senate Banking Committee hearing, SEC Chair Jay Clayton said that he thought Jackson’s results may be coincidental, since that timeframe may coincide with when companies open their trading window for insiders. To investigate Clayton’s comment about it being potentially coincidental, Jackson extracted data on all buybacks for a two-year period – estimating the length of pre-announcement trading blackouts, since companies have different policies.
But even after taking pre-announcement differences into account, Jackson found that, on average, executives sell more stock after they announce a buyback than on an ordinary day. 38% of the companies conducting buybacks had no trading in the 30 days prior to their buyback announcement date – but a majority had insiders making their own transactions during the eight days after a buyback was announced.
More on “SEC Seeks Contempt Order for Tesla’s Musk Over New Tweet”
Recently, Liz blogged about Tesla’s Elon Musk tweeting some production stats without getting internal pre-approval and the SEC subsequently filing a motion for contempt. This CNBC article contains some analysis of how the court may rule. Yesterday, Musk’s responded that the SEC is infringing on his 1st Amendment “freedom of speech” rights and that his tweets didn’t violate his settlement agreement with the SEC (here’s his court filing). I imagine we will get a court ruling soon.
Meanwhile, institutional investors have filed a lawsuit in the Delaware Court of Chancery seeking a declaratory judgment against Elon and Tesla’s board for violation of their fiduciary duty, injunctive relief relating to the Twitter use and monetary damages…
– Two Recent Delaware Decisions Provide Practical Transaction Guidance
– Antitrust Merger Review: The Worst Case is Worse Than You Think
– Cross-Border Carve-Out Transactions: Due Diligence and Purchase & Sale
– Shareholder Activism: Nine Lessons Learned
– The Couple in the Conference Room
Remember that – as a “thank you” to those that subscribe to both DealLawyers.com & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online. There is a big blue tab called “Back Issues” near the top of DealLawyers.com – 3rd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.
And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.
As this season’s batch of proxy materials roll in, we highlight some of the notables as we always do. We often cover developments from General Electric (see this video about GE’s ’14 proxy, with 1400 views) – and this year is no exception. GE has simplified its glossy annual report. The first “Letter to Shareholders” from new CEO/Chair Larry Culp includes these refinements:
– The first “Letter to Shareholders” from new CEO/Chair Larry Culp is much more concise than in prior years, honing on GE’s two priorities
– The future focus continues with an infographic that presents innovations yielded from investments in the GE’s high-tech healthcare, power, renewable energy & aviation businesses
– On page 6, an infographic presents GE’s businesses and their leadership positions, and also presents the company’s “extended industries”
– On page 8, GE uses a single ‘easy-to-read’ page to highlight segment performance, alongside a brief description of each segment’s mission and business units
People seem to like it. This CNBC article contains a quote about “In our view, the filing marked another step forward in GE’s journey towards increased transparency, simplified reporting, and clearer communications to investors.” And here’s a WSJ article. Plus here’s an excerpt of a (poorly made) transcription of Jim Cramer’s comment about it:
General electric ceo annual letter came out last night, hopefully his first of many. it is honest it is straightforward. in short it’s the most un-ge piece of correspondence i have ever seen. you want to understand it was the most complex where you could never figure out how to do it. the numbers were borderline incomprehensible i had to search for a glossary it explained how many divisions were holding up.
How Do We Fix Congress’ Approach to Changing the Securities Laws?
I’m digging this blog by my friend Bob Lamm of Gunster about how Congress might be floating as many as 20 bills at a time in the securities law & governance area – and how this scattered approach might not be the best way to make applesauce…
Tune in tomorrow for the DealLawyers.com webcast – “Activist Profiles & Playbooks” – to hear Anne Chapman of Joele Frank, Bruce Goldfarb of Okapi Partners, Tom Johnson of Abernathy MacGregor and Damien Park of Spotlight Advisors identify who the activists are – and what makes them tick.
Over on the “Business Law Prof Blog,” Prof. Haskell Murray flagged this Fordham study on pre-Securities Act prospectuses. It’s interesting for a number of reasons – not the least of which is that it includes as an appendix a copy of a Coca-Cola prospectus from 1919. Check it out!
Exempting The Crypto? The “Token Taxonomy Act”
Last month, I blogged about Commissioner Peirce’s comments calling for a lighter touch when it comes to regulating “decentralized” tokens. She’s got company in Congress. Late last year, Reps. Warren Davidson (R-Ohio) & Darren Soto (D-Fla.) introduced the “Token Taxonomy Act” – which would exempt “digital tokens” from key provisions of the federal securities laws.
This CoinDesk article notes that the legislation would carve out an exemption for the kind of digital assets to which Peirce advocated applying the Howey test with a lighter touch:
According to the text, the bill – among other items – seeks to exclude “digital tokens” from being defined as securities, amending both the Securities Act of 1933 and the Securities Exchange Act of 1934.
That definition has several components, all of which center around a degree of decentralization in which no one person or entity has control over an asset’s development or operation. This ostensibly would clear the way for cryptocurrencies that don’t have a central controller to be spared a securities designation.
The bill defines “digital tokens” as “digital units created… in response to the verification or collection of proposed transactions” (mining, basically) or “as an initial allocation of digital units that will otherwise be created” (as in a pre-mine). These tokens must be governed by “rules for the digital unit’s creation and supply that cannot be altered by a single person or group of persons under common control.”
Sorry if I come off like a digital Luddite – but is a broad statutory exemption from the securities laws really the best approach to an emerging asset category that few people understand, that’s been hyped relentlessly, and that’s rife with fraud?
IPOs: The Media Discovers “Cheap Stock” (Again)
Hey everybody – the media’s discovered “cheap stock” again. I know it’s been an issue in IPOs since Martin Van Buren was president, but for some reason it’s always huge news to the media when they stumble upon it. A couple of years ago, it was the NYT that breathlessly exposed the disparity between the valuation of equity awards made in advance of an IPO & the offering price. This time, it’s the WSJ that breaks the shocking news that private & public valuations are different:
A Wall Street Journal analysis of recent initial public offerings identified 68 companies that gave employees options to buy about $1.5 billion worth of shares in the 12-month run-up to their market debut. But the value of those shares was much higher based on a valuation model developed by academics—an estimated $2.2 billion, the equivalent of employees getting a 32% discount on the shares.
“The Journal’s findings show that the valuations being reported by companies are significantly below what the shares are really worth—the price that investors would pay for them,” said Will Gornall, an assistant finance professor at the University of British Columbia, in Vancouver.
What’s not clear from the WSJ’s article is whether it’s really comparing apples to apples in coming up with what the price “should” be for employee equity awards. The study seems to have just looked at the discount to the IPO price – the so-called “private company” discount. But pre-IPO equity awards usually have a lot of strings attached to them, such as vesting provisions and often onerous restrictions on transfer, and that affects their value too.
Here are the results of our recent survey on the use of board portals:
1. When it comes to board portals, our company:
– Doesn’t have one and isn’t considering using one in the near future – 3%
– Doesn’t have one but is considering whether to use one – 3%
– Adopted one within the past two years – 9%
– Adopted one more than two years ago – 84%
2. For those with board portals, our company:
– Licensed an off-the-shelf portal – 100%
– Built it in-house – 0%
– Hired a service provider to build a custom portal – 0%
3. For those with off-the-shelf board portals, we have:
– Asked whether our vendor has ever had a security breach – 24%
– Investigated our vendor’s security – 48%
– Plan to investigate our vendor’s security in the near future – 14%
– Not worried about our vendor’s security – 14%
Please take a moment to participate anonymously in these surveys:
Corporate Lonely Hearts: Public Shell Seeks Reverse Merger Partner
I think Jane Austen put it best when she said, “it is a truth universally acknowledged, that a private company in possession of a good fortune must be in want of a public shell to reverse merge with.” Well, she said something like that anyway. . .
However, finding your corporate soul mate isn’t always an easy process – and maybe that’s why one lonely public shell decided to take out a personals ad to let prospective suitors know it was available. The ad wasn’t shy about letting those suitors know that this shell had a lot to offer:
OTCQB Ready Fully Reporting Pink Trading Public Shell For Sale
– Selling control block (30,000,000 restricted shares)
– Has symbol, trading and quoted on the OTC Pink w/piggyback status OTCQB READY!
– FULLY REPORTING – FULLY AUDITED BY PCAOB ACCOUNTING FIRM
Other attributes included “DTC Eligible!” and “No regulatory issues.” Of course, as Madonna noted, “we are living in a material world,” so a suitor wasn’t going to get all this for free. So what was the price? “Cash & Carry – Ask $349,500.00.” The big question is – did true love prevail? Based on my sleuthing, it appears that the answer is yes. Our public shell – “China Grand Resorts” – seems to have found Jacksam Corporation, a maker of cannabis vaporizers for medical marijuana. The couple reverse merged last September & gave birth to a bouncing baby S-1 earlier this month.
Transcript: “Controlling Shareholders – The Latest Developments”
We have posted the transcript for the recent Deallawyers.com webcast: “Controlling Shareholders: The Latest Developments.”
In January, I blogged about the SEC’s enforcement proceedings against four companies that were unable to get their acts together when it came to ICFR. The SEC’s action was a shot across the bow of other companies that might have thought that full disclosure of a material weakness was sufficient. The SEC’s action delivered a clear message that when you’ve got an internal controls problem, you’ve got to fix it.
But at the same time, lots of companies have ICFR issues – and many material weaknesses can’t be fixed overnight. So which companies should be concerned that SEC Enforcement might soon be knocking at their doors? This ‘Audit Analytics’ blog may help companies assess their risk of being subject to an enforcement proceeding. It reviewed data on material weakness disclosures during the period from 2007-2017, and it concludes that the 4 companies targeted by the SEC in these proceedings all involved extreme cases of non-compliance:
When it comes to poor internal controls, these companies are some of the worst offenders, as the problems were allowed to linger for years. Looking at data from 2007 and 2018, 3.4% of registrants with any ineffective ICFR report had seven ineffective management ICFR reports, comparable to Digital Turbine. This percentage decreases to 1.9% for registrants such as LifeWay and CytoDyn that had nine ineffective ICFR reports. Overall, less than 10% of registrants with any ineffective ICFR management ICFR report had seven or more ineffective reports.
As the biggest of the four registrants, Grupo Simec is noteworthy, being one of only 72 companies traded on NYSE that had ineffective independent auditor’s reports on internal controls in 2017 and one of only two companies that has had ten ineffective audited reports since 2007.
While companies may take some solace in the fact that these 4 targets were outliers, the blog cautions that other firms with multiple ineffective ICFR reports but only minimal remedial actions could also be at risk.
Buffett to GAAP: “Get Off My Lawn!”
Last week, Warren Buffett’s annual letter to Berkshire-Hathaway shareholders landed – and while it had its usual on-brand mix of folksy humor and provocative statements (e.g., deals are too pricy & federal debt doesn’t matter), the Oracle of Omaha led off with a jeremiad against GAAP’s new “mark-to-market” requirement for unrealized securities gains & losses:
Berkshire earned $4.0 billion in 2018 utilizing generally accepted accounting principles (commonly called “GAAP”). The components of that figure are $24.8 billion in operating earnings, a $3.0 billion non-cash loss from an impairment of intangible assets (arising almost entirely from our equity interest in Kraft Heinz), $2.8 billion in realized capital gains from the sale of investment securities and a $20.6 billion loss from a reduction in the amount of unrealized capital gains that existed in our investment holdings.
A new GAAP rule requires us to include that last item in earnings. As I emphasized in the 2017 annual report, neither Berkshire’s Vice Chairman, Charlie Munger, nor I believe that rule to be sensible. Rather, both of us have consistently thought that at Berkshire this mark-to-market change would produce what I described as “wild and capricious swings in our bottom line.”
If Warren sounds grumpy, well, you would be too if you lost $25 billion in a single quarter, like Berkshire did due to Q4 mark-to-market adjustments. But he should take some consolation in the fact that Berkshire’s by no means alone in dealing with the increased volatility resulting from the new standard.
The mark-to-market requirement was expected to have a big impact on earnings for many companies, and it appears to be living up to its advance billing. For example, this recent Reuters article notes that the new standard’s effect on publicly traded PE funds such as Blackstone, Carlyle & KKR has been so significant that they’ve opted to deemphasize the traditional “economic net income” metric – which reflects mark-to-market adjustments – in favor of “distributable earnings,” which represents the actual cash available for paying dividends.
Delaware Chancery: Choosing Venezuela’s President Since 2019?
The Delaware Chancery Court has long played an outsized role in shaping the destiny of some of the world’s largest businesses. Now, this Bloomberg story says that the court may be called upon to weigh-in on the fate of a nation – because it may have to determine who is Venezuela’s lawful president as part of a battle for control over Citgo. Here’s an excerpt:
The leadership crisis in Venezuela could lead to an odd legal situation in the U.S. — a Delaware judge may be asked to decide who is the legitimate president of the South American country.
The issue could arise in the U.S. because of the power struggle over Citgo Petroleum Corp., the Houston-based refiner owned by Venezuela oil giant Petroleos de Venezuela SA. Last week, Juan Guaido, the U.S.-backed head of Venezuela’s National Assembly, named new directors to Citgo and PDVSA, a critical part of his strategy to seize oil assets and oust the regime headed by autocrat Nicolas Maduro, who remains in control of the military and other key parts of the government.
Venezuela’s president is the controlling shareholder of PDVSA, and the article speculates that lawyers for the U.S.-backed Guaido may set up a Chancery Court contest centering on who is Venezuela’s president by trying to remove Maduro’s directors and replacing them with his slate.
Big institutional holders seldom have trouble getting management’s ear – but traditionally, retail investors who weren’t willing to play the gadfly game could usually count on a polite brush-off from the IR department. Now, it looks like that situation may be changing. Broc recently blogged about SAY, a New York-based tech startup that provided a platform for retail investors to vote on questions to ask Elon Musk during a recent Tesla earnings call. But SAY’s not the only entity that’s trying to help retail investors be heard on matters that concern them. Check out ‘Stake’ – which aims to pair retail investors with a small group of socially responsible investment funds that will serve as “Champions” for their issues.
Stake provides a platform for retail shareholders to identify specific “Asks” that they want addressed by the companies in which they invest. Once an ‘Ask’ gets a critical mass of support, this excerpt from Stake’s website lays out what happens next:
When an Ask reaches its support goal, one of Stake’s Champions will take that Ask directly to company management, advocating on behalf of all those that supported the Ask. Our Champions are experts at persuading companies to improve their social and environmental impact, and they are already connected to the corporate decision-makers. Stake is a tool like none before. By connecting you with a professional Champion, your voice reaches the boardroom.
Investors who supported the specific “Ask” receive progress updates on the company’s response to it. Stake’s founders are themselves climate change activists & companies have implemented a number of the Asks that Stake’s allied funds championed.
I know it’s easy to be skeptical of efforts like these – and I have my doubts about how much traction Stake’s going to be able to get. But I’m also reminded that it only took David one stone to take down Goliath, & these folks have the potential to muster a lot more firepower than that.
Tomorrow’s Webcast: “Conduct of the Annual Meeting”
Tune in tomorrow for the webcast – “Conduct of the Annual Meeting” – to hear Nu Skin Enterprises’ Greg Belliston, The Brink Company’s Lindsay Blackwood, Foot Locker’s Sheilagh Clarke, Carl Hagberg of the “Shareholder Service Optimizer” and General Motors’ Rick Hansen talk about how to best prepare for your annual shareholders meeting.
Annual Reporting: Don’t Forget to Check On Your Filer Status!
This Akin Gump blog reminds companies to check on their filing status while they’re preparing to file their Form 10-K – many more companies may qualify as “smaller reporting companies” this year due to the SEC’s recent rule changes. Here’s an excerpt:
As public companies prepare to file their annual reports on Form 10-K for the year ended December 31, 2018, they should consider whether they qualify for smaller reporting company status under the recently amended definition of smaller reporting company, which became effective on September 10, 2018, and the related CDIs updated by Staff of the Division of Corporation Finance on November 7, 2018.
The amended SRC definition raises the threshold to allow more companies to qualify as an SRC and benefit from the election to use the scaled disclosure accommodations available to SRCs. SRCs may choose compliance with either the SRC scaled disclosure requirements or the larger company disclosure requirements on an item-by-item or “a la carte” basis for each filing as long as disclosures are provided consistently and permit investors to make period-to-period comparisons.
The blog also reminds companies thinking about taking advantage of scaled disclosure that, to the extent an SRC scaled item requirement is more rigorous than the same larger company item requirement, SRCs are required to comply with the more rigorous disclosure.
Lyft finally dropped the Form S-1 for its much anticipated IPO on Friday. The filing fundamentally changed humanity forever – or at least that’s the impression you’d get from reading Lyft’s overheated nuclear jargon-bomb of a prospectus. If you think I’m being unfair, check out this lofty description of the culture & values of a company that owes a healthy chunk of its business to ferrying around drunk people:
Our core values are Be Yourself, Uplift Others and Make it Happen. Our team members, who uphold our values and live our mission every day, are at the forefront of cultivating and spreading this culture across the drivers, riders and communities we serve. This continuous interaction across the entire Lyft community creates a virtuous cycle which further reinforces our culture and fuels our growth.
Look, I worked on a lot of IPOs back in the day, and I plead guilty to helping draft a lot of meaningless gibberish about companies doing things like “proactively leveraging synergies” in prospectus summaries with silly captions like “Our Strategic Vision” & “Our Competitive Advantage.” But this thing reads like a parody of a tech company prospectus – starting with the pink cover page & culminating in a founders’ letter accompanied by an assortment of photos & quotes from photogenic millennials whose lives have been transformed by one-click access to an unlicensed cab. Toss in the nearly $1 billion loss for the most recent year, and you’ve got truly state of the art stuff.
And maybe the biggest inside joke is that many people – including EU regulators – think ride share businesses like Lyft aren’t tech companies at all. Instead, they essentially view them as ‘gypsy cab’ apps. What’s more, in reading Lyft’s filing, you get the impression that its biggest market opportunity lies in the rapidly growing demographic of people who are too poor to buy their own cars. How do you spin that positively? You do it like this:
We believe that the world is at the beginning of a shift away from car ownership to Transportation-as-a-Service, or TaaS. Lyft is at the forefront of this massive societal change. Our ridesharing marketplace connects drivers with riders and we estimate it is available to over 95% of the U.S. population, as well as in select cities in Canada. In 2018, almost half of our riders reported that they use their cars less because of Lyft, and 22% reported that owning a car has become less important. As this evolution continues, we believe there is a massive opportunity for us to improve the lives of our riders by connecting them to more affordable and convenient transportation options
Of course, since the Lyft folks are working 24/7 to bring humanity into “the broad, sunlit uplands” of TaaS (not to be confused with TASS), management can’t afford to be distracted by the demands of public shareholders. Perhaps that’s why Lyft not only has a dual class capital structure, but also a staggered board, blank check preferred, and a prohibition on shareholder written consent actions, just to name some of its antitakeover protections. The CII has already weighed-in with the customary objections.
Personally, I couldn’t care less if Lyft wants to offer the public low vote stock – if you don’t like it, don’t buy it. But I’m looking forward to the post-closing pearl clutching about these provisions by the governance side of the house of the same institutions whose portfolio managers would likely stampede over their own children to get shares allocated to them in the deal.
If you’re looking for more of a deep dive into Lyft’s proposed IPO, check out this MarketWatch.com article.
Dual Class Companies: Are “Coattails” the Answer?
Lyft’s just the latest high profile IPO to include a dual class capital structure. There’s been a lot of sound & fury about public companies with these structures – and we’ve blogged about quite a bit of it. But this recent study claims that our neighbors to the north are the source of an idea for moving forward on this issue. Here’s the abstract:
The debate over whether dual class of shares increases or decreases share value, should be prohibited or not, should be subjected to mandatory sunset provisions, and so on has been heating up over the last few years. This paper reviews the pros and cons of dual class of shares in light of more recent empirical results of (mostly) American studies. The paper surveys the evolution of dual-class companies in the Canadian context and makes a number of recommendations to enhance the usefulness of this type of capital structure and protect the rights of minority shareholders.
The paper comes out against time-based sunset clauses but supports the obligation for dual-class companies to adopt a “coattail” provision, as is the case in Canada, which provision ensures that all shareholders will have to be offered the same price and conditions should the controlling shareholder decide to sell its controlling stake in the company. The paper also recommends that separate tallies of vote results be made public for each class of shares and that a third of board members be elected by shareholders with “inferior” voting rights.
Now, I hate to disabuse North America’s designated driver of its notion that “coattails” are a Canadian invention, but the there’s lots of precedent for this south of the border as well – and it goes back decades. You need look no further than my all-time favorite deal for evidence of this.
In the Cleveland Indians’ 1998 initial public offering, the company’s charter included a provision that generally prohibited the transfer of the high-vote shares held by then-owner Dick Jacobs other than as part of a transaction in which the low vote shares received the same consideration as the high-vote shares. And you can take my word for it – we weren’t innovators. In fact, we shamelessly stole that language from charter documents filed in several precedent transactions.
The SEC’s limited track record in litigation involving whether tokens are securities has been pretty good – but there was one recent blemish. In December, a California federal court denied the SEC’s motion for a preliminary injunction against Blockvest’s proposed token offering, holding that the agency had not provided enough information to deem the token a security. Here’s an excerpt from John Reed Stark’s blog describing the court’s decision:
On February 14, 2019, in a stunning and extraordinary reversal from his November decision, Judge Curiel sent shockwaves through the ICO industry. Specifically, Judge Curiel granted the SEC’s bid for a preliminary injunction against Blockvest after the SEC asked him to reconsider, based upon, “a [now] prima facie showing of Blockvest’s past securities violation and newly developed evidence which supported the conclusion that there is a reasonable likelihood of future violations.”