US financial services firm HomeStreet has won court backing in its efforts to stop a hedge fund firm putting its own director candidates on the ballot ahead of HomeStreet’s AGM next month.
Roaring Blue Lion Capital has been seeking to place two candidates before shareholders for potential inclusion on HomeStreet’s board, a move the company has rejected. In a statement issued in March, HomeStreet said Blue Lion Capital’s notice of proposals and nominations for the company’s AGM was invalid because it contained ‘at least 32 instances of failures to satisfy the requirements set forth in the bylaws.’
According to a letter sent by HomeStreet’s attorneys at Sidley Austin to Blue Lion Capital on March 1, these ‘failures’ include:
- Stating the number of shares beneficially owned by the Blue Lion parties but failing to specify the number of shares beneficially owned by the Blue Lion Opportunity Master Fund
- Not describing the ‘methods employed and to be employed to solicit security holders’
- Not stating ‘the total amount estimated to be spent and the total expenditures to date for, in furtherance of, or in connection with the solicitation of security holders’
- Not stating the ‘amount of securities of the company owned beneficially, directly or indirectly, by each of the participant’s associates and the name and address of each such associate’
- Not describing ‘any substantial interest, direct or indirect, by security holdings or otherwise, that any person who is a party to an arrangement or understanding pursuant to which a nominee for election as director is proposed to be elected has in any matter to be acted upon at the meeting’
- Filing incomplete questionnaires regarding the director candidates.
Blue Lion Capital, through its affiliate Blue Lion Opportunity Master Fund, then sought a preliminary injunction to overcome the company’s rejection of its notice. In its court filing, it argues in part that its case ‘is about whether a CEO/chairman and an entrenched board can manipulate the corporate electoral process to block on non-substantive grounds three corporate governance shareholder proposals and the nomination of two alternative directors.’
It complains that HomeStreet’s bylaws ‘contain over six pages of hurdles to the nomination of a director candidate by a shareholder. The myriad of procedural hurdles required to successfully make a nomination is suspect in and of itself.’
The fund adds: ‘The claimed deficiencies referenced in the company’s March 1 letter are unfounded, inaccurate and immaterial and will lead shareholders to mistakenly believe they now have only one choice in the upcoming annual elections for directors. In effect, HomeStreet has hijacked the election by essentially ruling out of order the opposing candidates and shareholder proposals.’
HomeStreet opposed the Blue Lion Capital motion. In its court filing, it argues in part that the bylaw at issue – an ‘advance notice bylaw’ – is ‘a normal and significant feature of corporate governance that appears in one form or another in the bylaws of almost every public company across the country.
‘Without an advance notice bylaw, any shareholder would be able to nominate directors or make proposals at shareholder meetings with little to no advance notice or informational disclosure. Advance notice bylaws are a standard feature of corporate governance and require shareholders seeking to make proposals or nominations to submit a notice in advance in a form specified in the company’s bylaws.’
The Superior Court of King County, Washington ruled in favor of HomeStreet. In the court’s order, Judge Timothy Bradshaw agrees that advance notice bylaws ‘like the one at issue in this case are common’ and that the fund failed to comply with the bylaw’s requirements.
Sidley Austin partner Kai Liekefett, who is representing HomeStreet, tells IR Magazine this is a ‘landmark case,’ describing it as ‘the first time a court applying Delaware law has ruled that an activist hedge fund was precluded from nominating an opposing slate of director candidates because of the activist’s failure to comply with disclosure requirements of an advance notice bylaw.’
Post-ruling
In a statement on the court’s decision, HomeStreet says in part: ‘Our bylaws exist for the protection of all HomeStreet shareholders. The board believes it is important to treat shareholders fairly and equally, with the same rules and deadlines applying to everyone. HomeStreet is committed to engaging constructively with its shareholders, including Blue Lion. The company looks forward to continuing to execute on its strategic plan to maximize long-term shareholder value.’
Blue Lion Capital issued a statement the same day complaining that HomeStreet’s directors ‘have seized upon technicalities… Blue Lion Capital remains fully committed to pursuing the much-needed changes at HomeStreet and we look forward to further communicating with our fellow shareholders soon.’
On April 6, Blue Lion Capital filed for voluntary dismissal without prejudice of its action filed with the court, according to a HomeStreet SEC filing. The company last week also filed with the SEC a notice that, on April 11, it received a letter stating that Blue Lion would not solicit for its nominees or shareholder proposals, but would solicit votes against the election of director candidates nominated by the issuer.
Neither Charles Griege, managing partner and chief investment officer at Blue Lion, nor attorneys for the firm at Foley & Lardner responded to requests for comment.
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
