Opinion

Alison Frankel

PIMCO can’t move annual meeting to block Brigade board nominee

By Alison Frankel
February 24, 2012

Remember a couple years back when Air Products, in its takeover assault on Airgas, attempted to force Airgas to move up its annual shareholder meeting? Air Products wanted to rush a vote on a slate of board nominees it supported en route to gaining control of Airgas’s staggered board. The hurried-up meeting seemed at first like a clever maneuver by the company and its lawyers at Cravath, Swaine & Moore: After some tediously hair-splitting testimony about whether “annual” means once in a calendar year or once every 12 months, then-Chancellor William Chandler of Delaware Chancery Court blessed the moved-up shareholder meeting date. But Chandler was subsequently overturned by the Delaware Supreme Court, which said the Airgas board members whose seats were at stake were entitled to serve out their full three-year terms.

The shareholder meeting shuffle was nonetheless apparently not forgotten as a defensive device. Last September, the hedge fund Brigade Capital informed PIMCO that it intended to nominate a Brigade partner to serve on the board of trustees of two PIMCO funds, Income Strategy and Income Strategy II. In previous years the PIMCO funds held annual shareholder meetings in December, and a November 2010 proxy statement said the 2011 meetings were likely to take place in December as well. But in October 2011, PIMCO abruptly announced that Income Strategy and Income Strategy II would hold their next shareholder meetings not in December 2011 but in July 2012.

Brigade and its lawyers at Weil, Gotshal & Manges smelled a rat. On Dec. 1, they filed a declaratory judgment action in Massachusetts superior court, asking for a ruling that PIMCO had violated the funds’ bylaws in pushing the annual meeting back seven months, leaving a gap of 19 months between shareholder meetings.

“Absent immediate intervention by this court, PIMCO will deprive plaintiffs and all other shareholders of their fundamental right, enshrined in the controlling bylaws, to elect trustees at an annual meeting to be held ‘on at least an annual basis’ — and not on a ’19-month basis,’ as PIMCO now intends,” said the Brigade complaint (available here as part of a PIMCO filing with the Securities and Exchange Commission.)

PIMCO and Brigade, like Airgas and Air Products, engaged in considerable back-and-forth about the meaning of the word “annual.” Brigade contended the bylaws required PIMCO funds to hold meetings every calendar year; PIMCO said it was bound by the fiscal year, not the calendar year.

Massachusetts Superior Court Justice Peter Lauriat dispensed with both interpretations. In a summary judgment ruling sent to both sides earlier this week, the judge said annual, as it’s used in PIMCO’s bylaws, means approximately every 12 months.

“Sound corporate governance principles require that the funds enable their shareholders to approve or disapprove the funds’ directions at ‘regular meetings of the shareholders,’ which should be held not less than every twelve months,” Lauriat wrote. “Delaying the shareholder meeting deprives shareholders such as Brigade of that timely and essential voice.”

The judge granted summary judgment to Brigade and ordered PIMCO to schedule the shareholder meetings “as soon as practicable.”

Brigade counsel at Weil declined comment. A PIMCO lawyer from Ropes & Gray referred me to a PIMCO spokesperson, who didn’t return phone messages.

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