It’s true, Bloomberg says so, Palm Inc is working with Goldman Sachs and Qatalyst Partners to find a buyer, but as with so much M&A activity, is anyone thinking about the corporate governance issues?
They should be.
We already showed that they could have saved $100 billion by thinking about it in the case of AOL Time Warner. Palm – well we’re not talking about losing that much money – but it still needs thinking about, particularly as The Corporate Library recently lowered its rating from low risk to high risk (you can buy the full governance profile here).
What are some of the problems?
Well, takeover defenses, ironically enough, including a classified board and a multiple share class structure. This is what The Corporate Library’s analyst comment says about the latter:
Additionally, the company has a multiple share class structure consisting of common stock, Series B Preferred Stock (Series B), and Series C Preferred Stock (Series C). Common stock is entitled to one vote for each share, Series B shares are entitled to approximately 117.647 votes for each share, and Series C are entitled to approximately 307.692 votes for each share. Together, Series B and Series C are convertible into 53,927,601 shares of common stock. Elevation Partners, L.P. (a private equity firm) are beneficial owners of all the outstanding shares of the Series B and Series C stock. Directors Fred D. Anderson and Roger B. McNamee are co-founders and managing directors of Elevation Partners.
The comment concludes this section with masterful understatement:
Their (Anderson’s and McNamee’s) presence on the board combined with the disparate voting rights raises concerns that the interests of public shareholders may be subordinate to those of Elevation Partners.
No duh!
And executive compensation is not the greatest either, with a recent move to semi-annual cash bonuses, reflecting the company’s faltering performance, perhaps, but also hyperfocusing executives on the ultra short-term which is hardly helpful to shareholders concerned about long-term value. Added to which, recently promoted CEO Jonathan Rubinstein is sitting on some performance-related stock options – a million of them – that at the current stock price have about as much chance of vesting as, well, a stock option that doesn’t have much chance of vesting. You see, they will only vest if the stock price hits targets of $12.75, $17.00 and $25.50, and since it’s currently moldering around the $5.40 mark, there doesn’t look like a hope in hell. Unless, of course…. What’s that clause in his Management Retention Agreement…: “entitles him to full acceleration of the vesting of his outstanding stock options and full vesting of any shares of restricted stock and RSUs (regardless of performance requirements) upon a change of control.”
Hmmm… a change of control seems a bit easier to achieve than doubling, tripling and quintupling the stock price. Conflict of interest, anyone?
Paul Hodgson - Senior Research Associate
