Matt Levine of Bloomberg :
Dueling 8-Ks!
Who controls a company? Its managers? Its chief executive officer? Its board of directors? Its shareholders? “The night watchman controls the company, sort of,” I wrote last week, “if he can change the locks overnight and not let the managers and directors and shareholders in the door the next morning.” Control of a company is fractured and elusive, because “a company” is fractured and elusive: It is not an identifiable coherent object, but a set of people and decisions and pronouncements and products and web pages and filings. If you have influence over any of those things then to some degree you control the company.
In the cleanest form of corporate-finance theory, some hierarchy of control flows up from the night watchman to the managers to the CEO to the board to the shareholders, and the people at each level of the hierarchy have tools to make sure that the people below them in the hierarchy can do what they want. But in the actual world, people sometimes … just … do … stuff.
Rockwell Medical Inc. is, let’s say, a company. It trades on the Nasdaq Global Market under the ticker RMTI, it has about a $300 million equity market capitalization, and it “manufactures, markets, and delivers dialysis solutions, powders and ancillary products to hemodialysis providers,” according to Bloomberg. But this week it seems to have fissured into two companies, each with the same name, business, assets and shareholders, but with different, let’s say, metaphysical statuses. At one of them—call it RMTI-A—the board of directors met on Tuesday and decided to fire Chief Executive Officer Robert Chioini, at which point he resigned from the board; it also appointed a special transition committee of three directors to oversee the company while it searches for a new CEO. We know this because RMTI-A put out a press release and 8-K about these developments on Wednesday morning.
At the other Rockwell Medical Inc., call it RMTI-B, Chioini remains the CEO and is still on the board. He is however aware of the goings-on at RMTI-A, and he’s not happy about them. For instance the directors who fired him at RMTI-A are, at RMTI-B, in the doghouse. (They tried to fire him at the board meeting at RMTI-B, too, but “as that action was not the purpose of the special meeting, the determination of the non-conflicted independent directors was that the termination was not effective.”) Those directors are, at RMTI-B, the subjects of “an internal investigation in response to [a shareholder] demand letter requiring immediate initiation of an investigation of alleged breach of fiduciary duties by various directors and other possible violations of federal securities laws,” and Chioini “through counsel has notified the SEC of the action taken by the directors whose conduct is discussed in the demand letter that gives rise to the investigation.” We know this because RMTI-B also filed an 8-K about these developments on Tuesday night.
But this fissure is so far purely metaphysical. No one has told the Securities and Exchange Commission about it, for instance, and so RMTI-A and RMTI-B share a single account— Rockwell Medical Inc.’s—on the SEC’s Edgar system. At 9:27 p.m. on Tuesday RMTI-B’s 8-K, announcing that Chioini is still the CEO, arrived at Edgar; at 6:05 a.m. on Wednesday, RMTI-A’s 8-K, announcing that no he isn’t, arrived. Because late-evening Edgar filings don’t actually become public until the next day, the two filings ended up hitting the Bloomberg terminal news feed five minutes apart on Wednesday morning. Confusing!
Obviously each side thinks that it is the real Rockwell Medical Inc., and that the other company (and its 8-K) is an impostor. “Following the May 22, 2018 Board meeting and without authorization, Mr. Chioini and Thomas Klema, Vice President, Chief Financial Officer, Treasurer and Secretary, filed a Current Report on Form 8-K making certain assertions regarding the independent directors who voted in favor of Mr. Chioini’s removal,” says RMTI-A’s 8-K (emphasis added). Well, without whose authorization? Certainly without the authorization of RMTI-A’s board of directors. (Certainly also without the authorization of RMTI-A’s CEO, since at that point RMTI-A didn’t have a CEO.) Certainly, though, with the authorization of RMTI-B’s CEO, and perhaps even with the authorization of its board.
Oh also RMTI-A fired its chief financial officer and RMTI-B didn’t, so there’s that. (“I have no information to suggest the governance requirements to call such a meeting were followed,” says RMTI-B’s CEO about RMTI-A’s board meeting to fire the CFO for conspiring in the RMTI-B 8-K.)
I don’t even have a point here. I just wish all corporate governance was like this. What will happen? How will it end? Who cares! It’s so wonderful. I mean, no, obviously it will end with everyone suing and with a court eventually deciding which of RMTI-A or RMTI-B is “really” Rockwell Medical Inc., but how boring that will be.
The good outcome would be if this goes on forever—if RMTI-A and RMTI-B just continue to coexist, with the same assets and buildings and employees and, crucially, Edgar identifiers, but with some slight non-overlaps among their directors and executive officers. Everyone should keep coming to work, and glaring at each other, and asserting that they run the company. (I said much the same thing about CBS Corp., which is stuck in its own quantum superposition, last week.) “Get to work on manufacturing that dialysis solution,” the RMTI-B CEO will say to a lab technician. “No, no, grind that powder instead,” the RMTI-A special transition committee will say. The technician will shrug and, I don’t know, pick a side I guess? Try to please both sides? Do what people in any office do to manage the conflicting demands of different bosses and tricky office politics, but more so? Meanwhile RMTI-A and RMTI-B will take turns issuing 8-Ks, all of them about “Rockwell Medical Inc.,” but increasingly disconnected from each other. “Rockwell Medical Inc. announces that it is considering strategic alternatives,” one 8-K will say, followed minutes later by one saying “No it most certainly is not.” Every day will be an adventure.
And why not further splintering? Yesterday’s drama gives us a clue that Rockwell’s CFO (well, RMTI-B’s CFO anyway) has the Edgar access codes, since he was involved in Chioini’s 8-K. He should issue his own 8-K late one night declaring himself CEO. Really if you are the assistant corporate secretary at any large public company, and you happen to have the Edgar keys so you can make routine filings, why not throw in an 8-K declaring yourself CEO? Give yourself a huge stock award while you’re at it. Who’s to say what’s real anyway?
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