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Replies to post #8377 on The Rising Influence of Rising Affluence
04/25/14 5:46 PM
05/09/14 5:53 PM
05/29/14 5:31 PM
Threatening Shareholders and Breaching Fiduciary Duties
…In its proxy statement for the 2014 Annual Meeting of Shareholders—quietly filed late last Friday afternoon into a holiday weekend—Cliffs stated that the election of a majority slate of new directors proposed by Casablanca could trigger a change of control under the indenture governing Cliffs’ senior notes, potentially compelling it to repurchase the notes. This mandatory repurchase — or “Proxy Put” — would have a serious negative impact on Cliffs. We consider this an explicit threat to shareholders: vote for the incumbent Board or destroy the Company.
Cliffs failed to make clear that the current directors could easily defuse the Proxy Put simply by approving the nominees proposed by Casablanca — not as an endorsement, but merely for the narrow purpose of not triggering the Proxy Put. Instead of implementing this now-common corporate governance measure, the Board has implied a willingness to put the Company’s very existence at risk, employing brinksmanship with the Company’s liquidity in an attempt to preserve its current seats.
This entrenchment tactic constitutes a breach of the Board’s fiduciary duties, in our view. In fact, in the 2013 case of Kallick v. SandRidge Energy, the Delaware Court of Chancery found that the SandRidge Board, in refusing to approve a dissident slate’s directors to avoid triggering a Proxy Put, “failed to exercise its discretion in a reasonable manner.” The ruling went on to state unequivocally that “...it constitutes a fundamental offense to the dignity of [the] corporate office for a director to use corporate power to seek to coerce shareholders in the exercise of the vote...” and that “...there is immediate, irreparable harm when the directors of a corporation leverage a proxy put to enhance the incumbent Board’s chances of procuring stockholder votes...”
We are deeply troubled but not surprised that Mr. Kirsch and the rest of the Cliffs Board would threaten shareholders with a liquidity crisis in a self-interested effort to remain in power. Casablanca intends to protect shareholder interests by all available means, including litigation, if the Board persists in relying on a Proxy Put as a means of entrenching itself. Such action already had been found to be in violation of directors’ fiduciary duties, and we are confident of a similar outcome in this instance.
We call on the Board to immediately approve Casablanca’s nominees for the narrow purpose of avoiding the Proxy Put. Shareholders should be allowed to make their own decision on Cliffs’ future — free from coercive threats by incumbents.
AI
