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Jun 14, 2019

The week in GRC: Tesla governance reforms don’t pass, and Norway’s SWF to cut fossil fuel investments

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

Reuters reported that Renault, which owns 43.4 percent of Nissan, indicated that it would block the Japanese company from formally adopting an overhauled governance structure at a June 25 shareholder meeting unless Renault received representation on new Nissan committees.

The demand, conveyed in a letter from Renault chair Jean-Dominique Senard, could thwart the new structure, which has been developed after months of deliberation by an outside committee and was previously supported by Senard.

‘Nissan has received a letter from Renault indicating intention to abstain from voting,’ the Japanese firm said in a statement. ‘Nissan finds Renault’s new stance on this matter most regrettable, as such a stance runs counter to the company’s efforts to improve its corporate governance.’

– Raytheon and United Technologies said they would merge in an all-stock deal, according to CNBC. The combination would bring together United Technologies’ aerospace business, which makes everything from jet engines and cockpit controls to airplane seats, with Tomahawk missile-maker Raytheon. The companies would have combined annual sales of around $74 billion, they said.

The Wall Street Journal reported that a group of Hudson’s Bay Co shareholders has made an offer to take the company private. The proposed deal is led by chair Richard Baker, Rhône Capital, WeWork Property Advisors and other shareholders.

The transaction would be financed by the proceeds of the sale of Hudson’s Bay’s remaining stake in a European joint venture, which it agreed to sell on Monday for C$1.5 billion ($1.1 billion). Under the terms of the deal, Hudson’s Bay would leave Germany but retain ownership of its business in the Netherlands.

– Insys Therapeutics filed for Chapter 11 bankruptcy protection, roughly a week after agreeing to pay $225 million to settle a US probe into bribes it paid to doctors for prescribing a powerful opioid medication, according to Reuters. The filing made Insys the first drug manufacturer to turn to bankruptcy due to legal expenses brought on by accusations of responsibility in the US opioid epidemic. Insys said it plans to continue operating its business while it seeks the sale of substantially all its assets under a court-supervised sale process.

Insys, which manufactured the fentanyl spray Subsys, agreed on June 5 to settle the US Department of Justice (DoJ) probe and have a subsidiary plead guilty to fraud charges.

– According to the WSJ, Canon and Toshiba agreed to pay $2.5 million each to settle charges that the companies violated US antitrust laws by failing to notify authorities before a deal made for Toshiba’s medical device business. Toshiba designed a scheme to sell its medical system subsidiary to Canon for roughly $6.1 billion in 2016 while avoiding notification rules, according to a civil complaint filed by the DoJ.

Under the terms of a consent decree, the two companies agreed to create a program for complying with the Hart-Scott-Rodino Act and other antitrust laws, the department said. Canon and Toshiba didn’t respond immediately to requests for comment.

– Private equity firm Apollo Global Management said it had agreed to acquire US digital imaging company Shutterfly for $2.7 billion, including debt, Reuters reported. Apollo also announced it would acquire privately held internet-based retailer of photography products Snapfish and merge it with Shutterfly.

Shutterfly said in February that its board had formed a committee to explore its options with the help of investment bank Morgan Stanley after receiving acquisition interest from an undisclosed party.

– The WSJ reported that Tesla shareholders did not pass corporate governance changes proposed by the board of directors that would have given stockholders a greater voice in company matters. A proposal to narrow directors’ tenure to two years from three failed to get enough votes, as did a bid to change the supermajority voting requirement to a simple majority, the company said at its AGM.

Although both measures received more than 99 percent approval from those who voted, the proposals didn’t get two-thirds approval from all shares outstanding, Jonathan Chang, Tesla’s top lawyer, said at the meeting.

Glass Lewis had recommended shareholders vote in favor of the proposals, saying in a report that supermajority vote requirements ‘act as impediments to takeover proposals and impede shareholders’ abilities to approve ballot items that are in their interests. This, in turn, degrades share value.’

– According to Reuters, Democratic attorneys general from 10 states led by New York and California filed a lawsuit to stop T-Mobile US’ $26 billion purchase of Sprint, warning that consumer prices will rise due to reduced competition. The complaint was filed as the DoJ is close to making a final decision on the merger, which would reduce the number of nationwide wireless carriers from four to three.

The attorneys general from the 10 states, including Colorado, Connecticut, the District of Columbia, Maryland, Michigan, Mississippi, Virginia and Wisconsin, say in the complaint that reduced competition would cost Sprint and T-Mobile subscribers more than $4.5 billion annually. ‘To many upstate New Yorkers, [the carriers] still struggle with 3G,’ New York Attorney General Letitia James said at a news conference, adding that there is nothing in the merger that guarantees more towers and coverage for certain communities.

T-Mobile and Sprint did not comment. A spokesperson for Federal Communications Commission chair Ajit Pai declined to comment. The DoJ did not respond to a request for comment.

– CFOs are underestimating how climate-related risks, such as extreme weather and changing consumer views on environmental issues, may affect their company’s bottom line, and they need to make climate risk assessments a bigger priority, executives said at a WSJ event. CFOs should take a leading role in analyzing their company’s exposures to weather-related risks and making sure they have contingency plans for a warming climate in place, said Alison Martin, group chief risk officer for Zurich Insurance Group.

Reuters reported that, according to MGA Entertainment’s CEO Isaac Larian, toy company Mattel rejected another merger offer from the Bratz dollmaker. MGA Entertainment made the proposal in a letter to Mattel CEO Ynon Kreiz dated May 21, according to emails Larian shared with Reuters.

In response, Mattel’s chief legal officer Bob Normile wrote to Larian on June 7, saying that the company’s board unanimously concluded that the proposal was ‘not in the best interests of Mattel and its shareholders.’

Mattel did not immediately respond to a request for comment.

– The WSJ reported that Norway’s sovereign wealth fund is winding down its investments in fossil fuels. The Norwegian parliament voted on Wednesday to instruct its $1 trillion fund to pull an estimated more than $13 billion from oil, gas and coal-extracting companies and move up to $20 billion into renewable-energy projects and companies, representing roughly 2 percent of the fund.

The Government Pension Fund Global will not pull investments from major oil companies but it will divest from smaller energy exploration and production firms, according to a Ministry of Finance proposal. The move could affect several of its US investments including its stakes in Anadarko Petroleum, Occidental Petroleum and EOG Resources. EOG declined to comment while Andarko and Occidental didn’t respond to requests.

CNN reported that activist investor Jana Partners disclosed that it has a large stake in Callaway Golf and is pushing for a sale of the company. Jana said Callaway’s stock was still undervalued, even though Callaway was ‘driving innovation and durable market share gains in its core golf business.’ Several other individual investors are backing Jana’s attempts to boost the company’s value.

A spokesperson for Callaway said that ‘it is not our practice to discuss individual shareholders’, adding: ‘It is, however, the board and management’s practice to meet with shareholders to discuss the company’s strategy in accordance with SEC regulations.’

– According to the WSJ, three large, high-frequency trading firms asked a federal court to halt an SEC initiative that would limit the rebates US stock exchanges pay to attract investors’ orders. Citadel Securities, GTS Securities and the US arm of IMC said in a joint court filing that the SEC’s plan, called the transaction fee pilot, was an ‘ill-conceived’ program that would harm investors.

‘We know the outcome of the transaction fee pilot will be negative, even if we cannot predict the full scope of the harm that the SEC’s experiment will impose upon issuers, markets and investors,’ the firms said. Like other electronic traders, the firms collect rebates from exchanges, and the SEC’s pilot could have a big impact on their businesses.

The firms submitted the filing to support a legal challenge by the NYSE, Nasdaq and CBOE Global Markets. Citadel Securities, GTS and IMC declined to comment beyond what was in the brief. The NYSE, Nasdaq and CBOE declined to comment. An SEC spokesperson declined to 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...