The week in GRC: Senators eye share buyback curbs, and Appaloosa urges Allergan to split CEO and chair roles

Feb 08, 2019
This week’s governance, compliance and risk-management stories from around the web

The Wall Street Journal reported that activist investor Starboard Value said it is making a $200 million investment in Papa John’s International and that its CEO Jeffrey Smith is becoming chair of the pizza company. Starboard also obtained a board seat for Anthony Sanfilippo, former chair and CEO of casino operator Pinnacle Entertainment, now owned by Penn National Gaming. Papa John’s chief executive Steve Ritchie will join the board and remain as CEO.

– According to Reuters, Gannett Co on Monday rejected newspaper chain MNG Enterprises’ unsolicited buyout offer, saying it undervalued the company and was not credible. In January MNG offered to buy Gannett in a deal valued at $1.36 billion, or $12 per share, that represented a premium of 23 percent to Gannett’s closing price on January 11. Gannett said its board would engage with any party that makes a bona fide, credible proposal that appropriately values the company and is capable of being closed, and MNG’s proposal failed that test.

MNG, better known as Digital First Media, said on January 14 it had approached Gannett’s board and management on multiple occasions about a potential combination, but the latter had not ‘meaningfully engaged’. Gannett, the owner of USA Today, disclosed on Monday that it had responded to MNG’s offer on January 16, offering to arrange a meeting between the companies and had sought details on how MNG planned to finance the deal. MNG could not be immediately reached for comment.

CNBC said Senate liberals are proposing legislation that would prevent companies from buying back their own shares unless they first pay workers at least $15 an hour and offer paid time off and health benefits. ‘Our legislation would set minimum requirements for corporate investment in workers and the long-term strength of the company as a precondition for a corporation entering into a share buyback plan. The goal is to curtail the overreliance on buybacks while also incentivizing the productive investment of corporate capital,’ Senate Democratic leader Charles Schumer of New York and Senator Bernie Sanders of Vermont wrote in a New York Times op-ed.

More than $1 trillion in buybacks were announced by large companies in 2018 after a corporate tax cut left companies with extra cash to spend. But instead of significantly raising worker pay or investing in equipment, companies mostly used the cash to buy stock. Some large companies are buying back shares while announcing layoffs and factory and store closings, the senators wrote.

– The WSJ reported that Slack Technologies has filed paperwork for its direct listing on the stock market, paving the way for it to be only the second major company to use the non-traditional approach. Slack’s filing with the SEC was confidential and didn’t reveal any pricing information. The company said it filed documents for a ‘proposed public listing’, indicating it could go public without raising money by selling shares to the public in what is known as a direct listing.

Direct listing was pioneered by Spotify Technology last year. In a direct listing, the stock goes on a public market without the company raising any money for itself, unlike a typical IPO. The approach can save companies underwriting fees associated with traditional offerings and avoid restrictions on when insiders can sell shares.

– Hedge fund firm Appaloosa urged Allergan’s board to separate the roles of CEO and chair, a year after making a similar approach, according to Reuters. Allergan last week shelved plans to sell its women’s health business, which it had put on the block in May along with its infectious disease unit in order to focus on its core businesses.

‘In the wake of last Tuesday’s earnings call... it should by now be readily apparent to all interested and responsible parties that Allergan requires a fresh approach to its business strategy and an unbiased review of its capabilities, opportunities and way forward,’ said Appaloosa president David Tepper in a letter to Allergan’s board. The company did not respond immediately to a request for comment.

CNN reported that Amazon added Starbucks COO and former Sam’s Club CEO Rosalind Brewer to its board. Amazon said it appointed Brewer to the board’s leadership development and compensation committee. Brewer is the second black woman to have ever served as a director of Amazon and is the only person of color currently serving on Amazon’s 10-person board. At Sam’s Club, Brewer was committed to increasing diversity on her team and among her partners.

In May Amazon adopted a shareholder proposal to apply the Rooney Rule – the National Football League policy that requires teams to consider minority candidates for coaching and operations-level roles – to its board of directors. The company said the move formalized a process that was already in place.

– The WSJ looked at a survey by EY that found the majority of US companies spent more than expected to comply with new rules for revenue accounting, but also expect to reap savings from compliance efforts over the longer term. Three quarters of the 300 CFOs and chief information officers surveyed said the costs of complying with the new rules have increased since they began work.

Public and private companies estimate the transition to the new rules will cost, on average, $3.3 million per company, according to the survey. That’s up from a forecast of $1 million by 55 percent of finance and IT professionals EY surveyed in 2017. Eighty-eight percent of companies said they found it challenging to compile the data needed for new regulatory disclosures, and more than 80 percent will rely or have relied on manual workarounds to complete their reporting.

Bloomberg reported that the activist investor targeting Barclays ramped up his efforts to get a seat on the bank’s board. Edward Bramson’s investment firm, which holds more than 5 percent of Barclays’s shares, said it submitted a resolution to ask shareholders to appoint him to the board at the bank’s AGM, which is expected to be held on May 2. It is the first formal move by Bramson to win shareholder support for his campaign, after Barclays rebuffed his previous request to become a non-executive director last September.

Bramson will require a simple majority for his ordinary resolution to be passed, according to English law. Spokespeople for Barclays and Bramson declined to comment.

– Arconic named board chair John Plant as its CEO, according to the WSJ. The company said Plant would assume the role immediately and is expected to have the job for one year. He takes over from Chip Blankenship, a former General Electric executive who joined Arconic to serve as CEO in January 2018. The company also named director Elmer Doty as COO.

CNN reported that bankruptcy court Judge Robert Drain approved the sale of most of Sears’ assets to a hedge fund controlled by company chair Eddie Lampert for $5.2 billion. The decision will keep 425 stores open and save the jobs of roughly 45,000 employees. Drain rejected arguments from a committee of creditors, including landlords and major vendors, who had urged the court to shut the company down and liquidate the assets. Attorneys for Sears and Lampert argued that the sales process was fair and that keeping the company open would be better for all involved.

– The WSJ reported that BB&T reached a deal to buy SunTrust Banks for $28.2 billion, combining two regional lenders to create the sixth-largest US retail bank. If approved, it will be the country’s largest bank merger since the financial crisis, which led to a tougher regulatory regime. There has since been a relaxation of some of those rules.

BB&T chief executive Kelly King will be the first CEO of the new firm. SunTrust CEO William Rogers will serve as president and operating chief of the combined company following the deal and will become CEO after King steps down in 2021. Rep Maxine Waters, D-California, who recently became chair of the House Committee on Financial Services, said she would be examining the deal closely.

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