Intel fiduciary duty, Voya no-confidence vote

Alrighty, here we are, Anna Me Matt, just for you. Hopefully you're doing great. Hopefully we can make you proud of us today on this Sunday morning. Alrighty. Three, two, one. Three, two, one. Welcome to Shareholder Primacy from Free Float Media, a podcast about activist investing, securities law, and all the ways the financial and legal worlds intersect and collide in real life. It's midsummer and Ann and I decided to take a break from our break. End of summer. End of summer. And Ann and I decided to take a break from our break and record some some content for everybody. Anne, of course, is the Ann Lipton is of course the la law professor at the University of Colorado who teaches and researches securities and business law. She presides over the legal end of the podcast. And that's Mike Levin, an activist investor who lives and works in Chicago. He covers the financial side of our podcast. Well hello there. It's been a few weeks since we've regaled everybody with our stuff. How's your summer going? Yes. Ending. It's ending. Classes begin. we're recording on a Sunday. Classes begin for me tomorrow. So that's why I say it's the end of the summer. wow. excellent. And d did you get did did you get all your all your research done for the summer that you set out to I that's an embarrassing question I wanna ask Sorry. Take I take it back. No, I d I actually got stuff done in the sense of like, you know, the last couple of weeks were like the panic buckle down, get stuff done. So I I did. sure. Yeah, we were trying to figure out w when to record and you're saying, not this day. I got I owe people something. All right, cool. That's great. So yeah, my mine before you ask, mine's going great. Planning two or three projects for the fall. Can't talk about yet. You know, st wrapped up a couple already, but there's two or three have kind of started to emerge from their from their from their cocoons, from Chrysalis State to full full butterfly. I've gotta I've gotta focus, yeah. Ha ha ha. Okay. Okay. So anyway. so yeah, so it but otherwise we'd do a little travel and so forth. But I think I think as as far as our schedule goes, we'll probably knock out maybe one more of these before Labor Day, which is pretty imminent. And then hopefully we'll be on a more or less regular regular recording schedule. you know, roughly weekly, depending on travel and so forth for everybody. So you can look forward to that. but in the meantime, there were a couple of things we wanted to kinda cover. that's great. Yep. On a basically regular yeah. Mm-hmm. for this this week or this recording. First, there have been some there's been some consequences or fallout, whatever you want to call it, from the investment that the US government, the Department of Commerce made in Intel, the chipmaker la that they made they made that investment about a year ago. And I think there's been some really kind of interesting lawsuits that have been filed over that. A one lawsuit, one lawsuit. So we will we will talk about that for a while. And then Yeah. A lawsuit, yes. Yeah. there is a really unusual proxy solicitation that's taking place at Voya Financial. and there's a shareholder there that wants to put up a so called no confidence vote resolution for sh VoyA shareholders to kind of look at. So let's talk about both those things. Alrighty? Okay. Yeah, and just quickly a reminder: we have an email address, shareholderprimacy at freefloat.llc. We've actually been sitting on a couple of emails because we plan on doing like a show that's just answering them. so we'll we'll we will get to that, but we are not so we we do have your emails, and if you want to send more, shareholderprimacy at freefloat.lc. Yeah, maybe maybe before Labor Day we'll do a a comprehensive mailbag clean out and a and answer people's questions. That that requires some thought, but it it's a different kind of different kind of dirty secret among podcasters. Anyway, let's talk about Intel. and as a stock, and I was familiar with it for a while, just as an investment, it kinda sucked for like well over a decade. It was really kind of stagnant. That would be nice. Yes. and didn't really go anywhere. And then then it has jumped up a lot. the AI infrastructure boon and d demand for chips and everything Intel does ramped it up. So in the three months from like April May June of this year or March April May it like tripled. and it's since declined, you know, kinda Mm-hmm. Wow. giving back some of those gains. But it was it was a star of the first half, put it that way. which helped us taxpayers. All right, because for whatever reason, good, bad, or indifferent, we'll talk about that, the US government made a nine million doll nine billion with a B investment in Intel about a year ago in April in August, acquired ten percent of the shares, just under the threshold for whatever reporting might apply to the Yeah. Exactly. That that way it's not a benefici it doesn't have a short swing profit problem. I don't know if there's say are there is there short short is there sh is there short swing profit problem that we have to talk about with the tr commerce? Probably not. N we don't talk about it, but yeah, they stayed below the threshold where they would have to be a short swing profit reporting. Right. Whew, someone was I'm glad someone was thinking. But there was still a D that was n needed to be filed. I'm sure they didn't do that either. that investment is now worth approximately forty billion dollars. So that helps a little bit with our with it, but it's all it's all on paper. It's not cash. But anyway. Yeah, although to to call it an investment is a pretty loaded term, because if you look at this from the plaintiff's point of view, the government didn't make any investment at all. They just got shares. And that's really the problem. okay. Okay, let's let's let's talk about that. So anything else about the investment that's worth noting? So right, it's not like they you did the US government send ten billion dollars or nine billion dollars over to Intel okay, yeah. Well it would No, well, not exactly. See, this is this is this is where why we have this dispute. So yeah, Intel struck this deal to give the Trump administration just under 10% of the cop company new stock. And right now, a shareholder is suing over that, saying that this agreement is illegal. And the briefing on the motion to dismiss was just completed, so there's gonna be an oral argument, and then at some point the court will issue a decision. So it this it is in federal court, which is actually part of the story. And this is in federal court. Okay, go ahead. So just what happened, a lot of this was in news reports, but not all of it. The shareholder, Richard Paisner did a 220 request in Delaware for internal records, and some of that made it into his pleadings. Now, some of it is actually still blacked out confidential, but there's some that's public. So, what we know, we know from news reports, and we also know from his own investigation. And this is sort of what happened. So, Intel, as you said, makes computer chips, and exactly as you said, it's been falling behind in recent years. The stock has been under pressure. So under the Biden administration, Congress passed a law called the CHIPS Act, which provides funding to chip manufacturers like Intel in exchange for them boosting their domestic production. So the point is to get domestic production of computer chips. So Intel signed this deal, this contract with the Commerce Department, where it would get funding from the CHIPS Act in exchange for setting up these manufacturing facilities, which is all it had to do. To get the funding, do this manufacturing stuff, which it did, or it was in the process of doing it, fulfilled its side of the contract. And then Trump takes off this. And Trump announces that he doesn't like the CHIPS Act because he doesn't think the government should just give away funding. And he also doesn't like, yeah, exactly. Like he doesn't think, even though the statute says funding, and you if you set up manufacturing facilities, he thinks that's giving up too much. But that's the law. Exactly. Yes. Right. He w he wants an angle. He wants he wants to get something more in the negotiation. It's the art of the deal. You can call it that. At the same time, he's very unhappy with Intel's CEO, Lip Butan, because Tan has these ties to China. And so Trump accuses him of being a security risk. He puts out a post on Truth Social that Intel has to fire him right away. Tan runs to Trump's office and has some kind of emergency meetings with Trump. And then a few days later, the Commerce Department goes to the Intel board with a term sheet. And the term sheet says Intel will issue. Yes. Nearly 10% of its stock to commerce. And in exchange, commerce will release this CHIPS Act funding, which it was supposed to get anyway. And there was also Commerce hands the Intel board a voting agreement where Commerce offers that if this if you know if Intel takes this deal, Commerce is going to sign a voting agreement that says, as long as commerce holds the stock, it's going to vote its shares in accord with management recommendations. It's going to support management and all voting. Right. It's all very like mafia because commerce apparently it apparently tells the Intel board that you should not and this is the quoting from the complaint. Commerce tells the Intel board you should not make the mistake of thinking that this is a negotiation. Trump wants to expects to announce a deal on Friday. And commerce actually tells the board, we can't predict what will happen if you refuse. But the board should think very hard about the benefits of having a friend in the administration. Well Right. Right. Okay. Right. And commerce tells until if they agree, they'll now have the president's full endorsement. So so in the commerce essentially converted a federal grant program, conditional, and there's a I've I've actually been involved in these, but I mean this is very common. They converted it into a pipe. Yeah. Yes. It did, exactly. That's exactly what they converted it into. With a voting agreement. With with a with with a with a voting agreement. Which which depending on your perspective from a from a public policy civic affairs perspective, we'll talk about that. That's pretty bad. But but just it's pretty resourceful when you when you d if you're if you're if you're just an inve I mean if you're not an if you're an Intel investor who's not part of this, you just got diluted out some. Right. So anyway. Yeah, we will talk about that 'cause th there's there are angles here. It it Well, that is exactly why there's a lawsuit. So two days later, two days, it takes two days for the boards to approve this deal. And it does that despite the fact, once again, according to the internal documents, that it was concerned that this is not legal, like literally not legal. And despite apparently being concerned about the economics, that's in the board minutes. The board was concerned about the economics, they were concerned about legality, but they didn't get any kind of assurance. Yeah, we got enough from the G twenty. And And we know that for and we and we know that from the two twenty demand. Okay, got all right. And but they signed it within two days without getting any assurance, without getting a legal opinion. And after they sign, Trump starts telling people Tan walked in wanting to keep his job and he ended up giving us $10 billion to the United States. So we picked up $10 billion, which implies Intel didn't get anything in exchange for this deal. It just gave away its stock, which is why we now have a shareholder lawsuit. So Or w or or Intel itself didn't get anything but the CEO got job security. Well, exactly, which is part of the exactly what the shareholders' argument is, that this whole arrangement harmed the public stockholders. First of all, now everyone's diluted. Intel gave away 10% of the company for nothing, for money it was supposed to get anyway. So now everyone's stake is diminished. And second, the shareholders' argument is the board fundamentally insulated itself from shareholders because commerce signed this voting agreement. Now there's a 10% friendly holder of the stock. Okay. Okay, go ahead. And if anyone wants to vote out the board, if there was ever going to be an activist situation, because remember this company was in trouble, that activist is going to have a lot more trouble because there's 10% blocked. yeah. And a and and it's been a subject of activist attention in the past. I can't remember who it might have been, third point. I can't remember who did it, but there i it's it's there have been other activists that have circled around Intel before. Yeah. Right. So the whole point is that this insulates the board. And that's exactly why the shareholder, Richard Paisenry, files this complaint. Now he actually filed it in Chancery, in the Delaware Court of Chancery, because Intel is incorporated in Delaware. But with the defendants weren't just the board. He also named the Commerce Department and the Secretary of Commerce Howard Ludnick as defendants. And procedurally, that meant that the Commerce Department could move the whole case to federal court. So now it's in federal court in Delaware because Sure. The Commerce Department said you're suing us and we get to move to federal court. So they did. which I think is gonna matter, but we'll talk about the arguments. So the plaintiff's argument is that the Board of Intel breached its fiduciary duties to shareholders in a couple of different ways. First, the contract is illegal, it's just an illegal contract because the CHIPS Act doesn't authorize the Commerce Department to take equity. Like in like the Commerce Department is saying we can do this because the statute authorizes us to take equity. Yes. And the plaintiff says, No, no, it doesn't. It authorizes grants. it's like like a a pla a plain reading of the statutory language should should persuade anybody, including the federal judge in Delaware, or is this probably isn't going to a jury. Is there a jury? Is there a be a jury here? Okay. Yes. Yeah, the in Delaware. Fed no well, no, there won't be. It's it's not a jury case. But it's right, the federal judge well, right it's on a motion dismiss anyway, so that'll be the judge. But right, that and and the plaintiff look says, look, when Congress wants to authorize the government to take equity, it says so explicitly, TARP, things like that. So so here the plaintiff says this is illegal, and as we all know, in Delaware it's a breach of fiduciary duty for the board to knowingly violate the law, and that's what this board did. Yeah. So you can stop analyzing now. The board isn't allowed to break the law and give stuck to commerce. And also the pl the plaintiff points out that the legal advisor to the board was Scadden. Now, Scadden was one of the law firms that struck this deal with the Trump administration to provide for illegal for nothing. Like it wasn't like the Trump administration hadn't even taken action against them. And Scadden immediately said, Can we please give you $100 million in free legal work or something? So sure. That's it. Right. Right. So so so so scan papered this deal for the for the government. Exactly. So the plaintiff is saying Scadden was conflicted. You knew they were conflicted. And they, you know, sort of led you into this deal that is illegal. So that's the first argument. And the second argument the plaintiff had is that the board acted disloyally because this was actually done to protect the board and tan to so they could keep their jobs. So Trump wouldn't try to force them out, so they wouldn't be targeted. that's why they gave away the stock. And this voting agreement just shows this was actually about the board protecting its position, and that's disloyal. This is an entrenchment scheme. so what the plaintiff is asking for, it what the plaintiff wants to they mentioned he mentions damages, but what he really wants is to invalidate the contract, give the stock back all of that. and the co and I'll start before we talk about this legally, the commerce department has a lot of arguments based on federal law and the CHIPS Act and national security. Yes. They say federal law preempts Delaware law on this, that they have sovereign immunity, which means they can't be defendants, that this is all a national security issue. And I'm not gonna weigh in on any of that because I am a corporate law professor. I'm gonna stick. Yeah, we'll talk about the board exactly. Not all that. But except for this one thing, and this is about the court situation. I think commerce made a huge strategic mistake right off the bat by moving this case to federal court. Right. Right. We'll we'll talk about the board and Intel's obligations here, but not the government's. Okay, that's fair. Because if you go and you make these arguments in the Chancery Court, a state court, and you say this is a national security matter, this lawsuit is preempted by federal law, commerce is authorized to take stock. There's no way for a Delaware state court to decide that. I mean, it's hard for them. It's har they're corporate law experts. They're not national security experts. They don't really have a mandate to weigh in on these federal law issues. They don't have a great claim to authority to to invalidate federal contracts. So I think in Delaware state court, Right. There was a real chance the judges would just have not even wanted to entertain this and they would have found some way to dismiss the case. But a federal court, that's all they do all day, is tell the federal government it's violating the law. They they've been doing that an awful lot lately. They say that the federal government is violating the law and they enjoin the federal government from taking action. So I actually think it's better for this plaintiff that the case is now in federal court because now he'll get a real hearing. So yeah. So Well that's what they do, right? This is their job. Well now now th they'll get an expert or more expert look at the claims against commerce. And a more s and and a more and a judge that's comfortable, if the judge feels it's warranted, ruling in the plaintiff's favor in a way that Chancery judges may have felt uncomfortable. Right. So the venue is is a little question. Yeah, yeah. So I mean, I think the plaintiff lucked out that commerce made this mistake. so the arguments. The first is the simplest, the contract is illegal. And I once again I will not express an opinion about whether the plaintiff is right that the the contract is illegal. But let's assume, for the sake of argument, the plaintiff is right, that the CHIPS Act doesn't authorize commerce to take stock. Now we all know in Delaware, as we said, the board can't break the law. But what they can't do is Equity. knowingly break the law. And that's the key word, knowingly. So a lot of the board's argument is you can't show we did this knowingly. We had a lawyer, we had counsel. The legal issues are complex. You can't prove we did this deliberately. So the question for the court is going to be not only, not really just is this contract illegal, but whether the board knew that. Exactly. Was it reckless? Right. It's it's a matter of it's of of intent, basic yeah. Was it so obvious the deal was illegal? There was a that was it so obvious that the board had conflicted legal advisors who couldn't possibly give them a good opinion and didn't get they knew we know that the board was concerned and we know they didn't get a legal opinion. Right. Okay, but y w wouldn't the law, the statutory language be that plain, or is it that Well, that's exactly it. The board is going to say this is complex. What if it's this? And and and the court is going to say this is really and remember, this is a mo right now it's a motion to dismiss, which essentially means has the plaintiff said something plausible? You know, like whether so, you know, or I mean it's slightly higher than that, but I mean the court could easily say this is sufficient to move ahead to discovery, because right now the plaintiff has the 220 documents, but not real discovery, hasn't taken any depots or anything like that. It's really straightforward. Yes. They're yeah, they haven't they haven't deposed anybody, they haven't gotten intern probably much than we have internal communication or okay. Right. So so the question, yeah, exactly. So whether the plaintiff has given like enough to get to the next stage of litigation that the board did this knowingly, that's the first issue. But then we get to the second issue, which is this entrenchment issue. Did the board agree to this deal to give away Intel stock to keep their jobs, to benefit themselves personally? And if so, is that a breach of the duty of loyalty? And conceptually, here's the problem. Well, it's complicated because think of the board's position here. I I would think it would be. Okay. The Trump administration was threatening to withhold billions of dollars from the company. And maybe Intel really was entitled to this funding. It really had a contract to receive it. But if it had refused the Trump administration demands, then it would have had to file a lawsuit to get the money. There might have been years of litigation. And all that time it doesn't have the money. And worse, it's making an enemy of its own regulator. And presumably the Trump administration can retaliate, deny it permits. Right. And it's it's it's and it's losing lose I mean th the investments that Intel makes are very long term. You know, they'll they'll invest nine billion dollars and this is probably one fab. I don't know what I mean, you know, in the in somewhere in Arizona or something like that. And i it th th you know, they w they they probably already spent a bunch of money on design and maybe some of the initial work on it. Okay. And and and you know, th it wouldn't come online for three or four years. Yeah. Mm. it buntles it. And s so so they're already well into this investment and were probably counting on the nine billion, you know, f as part of their cap structure and so forth. They just it just was critical. So so they they had a lot of economic incentive to say, okay, we need to do everything we can to get the nine that we already started planning for and probably started building off of. Exactly. Exactly. It would have been risky, even if they're legally in the right, it would have been risky. Plus, again, retaliation, I think, was a very real issue. Not just fire the board, but like the Trump administration would do whatever it could to like make Intel suffer. So you sure. Right. Like yeah, yeah, yeah, you know, take the CEO's immigration status and probably make give him a hard time. And there's all sorts of possibilities. Right. Yeah. Yeah. So you can see how a board could reasonably think, yes, it's better to just give this stock to the administration, even if it costs us the dilution to the shareholders, because that's worth it rather than fighting. That could be a reasonable business decision. We don't have to like it, but it's not crazy in terms of what's best for Intel. So that would normally be squarely within business judgment. And also, this is part of what's in the redacted filings. We can't see it exactly. sure. But apparently Intel is claiming they did actually manage to renegotiate the contract a little bit in their favor, like accelerated payments or removing some contingencies, things like that. So they claim they got a little bit of improvements to the So anyway, and it turns out signing this agreement was great for Intel's stock price because it's not just about the AI situation. It's also it looks like Intel is government backing now, and other companies are like. Yeah. Signing contracts with Intel and they're investing with Intel because they know that Intel has US government backing. Yeah, and the thing about this, and this is where we get to the public policy issue of, I think this is bad for capitalism. Like it should be right, right, because So it's like the l little little halo effect. Right. absolutely. Yeah, this is this is no no no no no no CEO, no board of a company in Intel's position wants the federal government. I mean, they'll they're happy to have the grant money. Okay. But 'cause they've lived off of grants for decades in various ways. But this ca you know, p public investment with a voting agreement, that's insane. Well, it's insane for capitalism. I'm not sure it's insane for Intel. That's the issue. Like, here's the thing that like now people want like people want to invest in Intel because the US government is there. They want to do business with Intel because the US government is there. Now that's bad in terms of innovation, just competitors, like competitors to Intel have less incentive to like they can't compete on the merits because Intel isn't winning on the merits. Right. Right. And and now that you know, if that gives all these boards an incentive to like, why should I innovate my chips if I can just ingratiate myself with the Trump administration? I mean, it's just bad for competition. But that's not Intel's board's job. Their job is not to decide what's good for capitalism, their job is to decide what's good for Intel. Exactly. So normally this would all be classic business judgment. This is the decision we allow boards to make. Right. Yes. That's not their problem. Right. So it was good for int and Intel shareholders. But there's also the part where Trump was explicitly threatening the CEO and the board personally. And the way this actually unfolded, which again we know from the internal documents, it looks like Commerce came to Intel and said, You give us 10% of the company, and as a bribe, as a sweetener, we'll sign this voting agreement. So now it doesn't look like this was a pure business judgment. Well, they have us over a barrel. Now it looks like the board was self-interested. Because There didn't have to be that voting agreement. Like for sure, if you're gonna give away 10% of your stock to someone, the board could have legitimate reasons that buyer is gonna then vote to oust them. They don't wanna just hand their stock over with nothing, with no voting agreement, who's just gonna vote them out. That's fair. But there are other ways to deal with that. So, one thing, and this is what the plaintiff argues, they could have given non-voting stock. Or instead of a voting agreement to always support the board. It could have been a mirror voting agreement where commerce votes exactly with the public shareholders. Like there are ways to take care of the problem of I'm handing 10% to somebody, I don't want them to now turn to oust me without making it an entrenchment device. so no, that's the second, the first one was about the illegality. So so so if that's what they'd done, if the board had like signed a given no-vote stock or a mirror voting agreement, then the board could have a better argument that there was no self-interest. Right. Yes. Okay, so and that's the that's the first argument. Okay, go ahead. So you okay, got it. But with the voting agreement it looks like there is self interest. So And and and but there's no evidence about h whether they negotiated this point. We just haven't seen it. okay, got it. All right. There's they didn't negotiate anything. This is two days. And so the the so that's basically the set of arguments. So a couple things about this. First, the way the plaintiff structured his complaint, there is a very real chance the court could decide to separate the voting agreement from the stock grant. Like the court could say, well, this whole thing is a problem, let's move to the next stages. I mean, this is just a motion dismissed. But the court could also say that giving the stock to commerce was business judgment. Yeah. Right. Yeah. And it's only the voting agreement part that's the problem. And the court could separate those two pieces. but the other thing, and this is just like inside baseball legally, but for for people who care about like the legal standards, this is weird about how the case is being argued. we've said on the show several times in Delaware, because it's Delaware law, if a board is self-interested, that's a potential breach of the d duty of loyalty. And if there's no cleansing mechanism, which there wasn't. Then the entire deal is examined for fairness, entire fairness. We've said this before, it's a very high standard. The highest standard that Delaware has, the deal is examined very closely. And that's what Peytoner, the plaintiff, is arguing that this was a self interested deal, and it's entire fairness. And of course, the defendants they say, no, this is business judgment. We had to we made, you know, we made a reasonable decision that this was best for the company. But here's the thing this isn't a normal kind of loyalty violation. No, not here. Right, right. That's that highest that's the higher st highest standard of review. Right. Right. This is a very specific kind. This is entrenchment, a board acting to maintain their seats. And nor this wasn't like they were selling their assets to the company or buying assets from the company, that kind of conflict. This is to maintain your seats. And normally, under Delaware law, when you act out of an entrenchment motive, that isn't entire fairness and it's not business judgment. Normally, Delaware courts use an intermediate standard of review for that. That's called enhanced scrutiny. Enhanced scrutiny. Okay, yes, right, right, right. And under enhanced scrutiny, a board has to show that it identified a threat to the corporate enterprise and it acted reasonably to defuse that threat. So I I just have to quickly mention there's no other case exactly like this, but the closest that I can come up with is some as a case not not long ago called Edio. Egio, there was a company that was a lot of financial trouble, very possibly could have been a target for activism. So to save the company, the board decided to make an acquisition to buy another company and pay with stock. 33%. It was going to issue 33%, a lot, to Apollo. That was the seller of the company that they wanted to buy. And they wanted to make sure that Apollo wasn't going to turn around and take its 33% and oust the board. So they made Apollo sign a stockholder agreement to always vote for the board of directors and also to never transfer its stock to anyone on a list of activists. There was a list of activists and Apollo couldn't sell their stock to it. So the shareholders sued, and the court agreed this is enhanced scrutiny, not entire fairness. Not business judgment. Now that case is obviously different. For one thing, in that case, the plaintiffs were only challenging the voting agreement, not the acquisition. and also the board was the one who came up with the agreement. It was much more intense than the one here. But still, if we follow EGIO, we would say this is enhanced scrutiny. And enhanced scrutiny, it's just not as stringent a task. It's also possible the board could say something like: We identified a threat to the corporate enterprise, Trump was going to damage the company, we acted reasonably under the circumstances, we were in a rush. Commerce was the one who suggested the voting agreement, and the board could say it's only 10%. And it barely makes a difference anyway, because who's gonna do an activism while the US government holds 10%? It's not gonna happen. So, but the thing is that no one's really arguing for enhanced scrutiny because the plaintiff wants entire fairness and the defendants want business judgments. So there really isn't much briefing on the enhanced scrutiny. So it's a weird situation, and that's basically where we are. Well, there'll be oral argument and then the court will make a decision whether it goes forward. It hasn't been scheduled, they just requested it. We grabbed it. Okay, sure. And when's the URL when's the URL argument schedule is pretty soon? so this is gonna be a while before this goes forward. Yeah, and the court I mean really the court either dismisses the case or part of the case, or the court says you move on to later stages. Like there won't be like the court's not gonna strike the whole agreement or anything. Not now. In federal court. Then it yeah, it's not chancery, it's the move. Mm-hmm. Right, and this is federal court, which moves a lot more slowly than Delaware. Right. wow. All right. so th this is kind of interesting from you know, 'cause activists see this kind of stuff all like I said in pipes where we see we'll see it we'll see a pipe that like totally screws over all the other shareholders. And this doesn't I don't I'm not sure this screws over shareholders, but it certainly doesn't favor them. Yeah. Yeah, you're right, it's a pipe. Well, it di well, that's it depends on how you look at it. The dilution absolutely does. But on the other hand, having the US government backing, as bad as that is for general capitalism and competition, may very well turn out to be very good for Infil. Yeah. Yeah. Yes. It's gr it was good for Intel. Look look what happened to the share price. So anyway. All right. Let's let's let's leave this one there and when we'll take a quick break and when we come back we'll talk about Voya Financial here at Shareholder Primacy. Holding that in. Yeah, me too. I'm trying to get this in before the nap is over. All right. I'm sorry. the where the the dog left. Dog split. wow. Didn't even notice. Dog, dog, dog could not take it. Couldn't take it. Alrighty, let's go. Three, two, one, over to you, Anne. Yeah. The cat the dog? The the dog? Yeah. The dog is bored. The dog is not interested in activist truth. Welcome back to Shareholder Privacy. I'm Ann Lipton here with Mike Levin. And we are talking about a weird situation at Voya Financial, which I guess was a wealth management firm that was spun out of or yeah, is a wealth management firm that was spun out of spun out of where? ING. Okay, financial. And and it's I guess you you would know better than me, but it's doing well. It shares her up. Yes. Or is, is it exists. I and G Yeah, well, you know, it's it's fine. So so Voyas kinda had, you know, a a a a f very stagnant few years before this year. This year it's up like forty two percent. you know, they they got spun it they it was public company created in twenty thirteen, after Voy after ING cr spun it out. and now now this activist investor has come along with something that we really haven't seen very much of or none of. Okay. I I I haven't heard of it. in in in the past. and it's quite an unusual proxy contest and solicitation. the activist is called Tom's Capital. and let's talk a little bit about some of the dimensions of the investment. So Tom's Capital owns about four point five percent of Voya. Voya's about a nine billion dollar market cap company. So they own about four and a half percent. and Tom's Capital is about a not quite four billion dollar fund. So their investment in Voy is about 13% of its AUM assets under management. and they have some experience, Tom's, as an activist, but it's really quiet. you know, they've done some activist investing projects at Target and a couple other places, but it's not no not nothing where they've been filing anything in like in the form of a 13 D. they've as far as I can tell, they've never done any kind of proxy contest before. So they have experience in terms of pressuring management, but not experience in proxy contests and certainly what's what's what they have in mind here. And what they have in mind is asking shareholders to vote in a no confidence resolution. yeah, right. That was my question. it's pretty vague. I'm gonna read you the resolution. Okay, what is it? No confidence resolution. So they are putting this resolution in front of shareholders. Resolved that the shareholders of Voya Financial Inc. no longer continue to have confidence in the board of directors and management of Voya Financial Inc. That's it. That's the whole thing. No, right. Yeah, right, right. So so so there's a few dimensions to that which are very curious. And and this Okay. That just we don't have confidence. Alright. Okay, but this isn't Parliament. Like no confidence doesn't require the directors to like This could either be for some reasons, this could this could become inspired and really achieve some really interesting objectives in a very backdoor kind of way, or it could just be stupid and futile and cost them a lot of money in ways that that they could have easily avoided spending. Okay. So n normally, as we all know, with a resolution, this is precatory. Okay. So well well w how how are they how are they doing this exactly? Hmm. Right. It's just we are saying we have no confidence. We are we are expressing our emotions. Okay, just by the f what the words of it, there's nothing there's not it doesn't obligate the company to do anything. Okay, right. So so so instead of like submitting this to the company for the next AGM and the last one was just this past was in May, April, they'd have to wait, you know, several months, okay. they're going to have shareholders vote on this resolution at its own meeting. So Tom's is go is organizing and convening a shareholder meeting. It's gonna be virtual. So it's not like there's gonna be, you know, coffee and swag at some hotel ballroom somewhere. It's a virtual meeting. But Tom's is organizing a shareholder meeting and they're going to solicit proxies of shareholders that can't attend the meeting, which is a little hard to believe 'cause it's virtual. But anyway, there'll be people who vote by proxy. and then Okay. Right. Right. And the sole purpose of this meeting is to vote on this matter, this one resolution. And look. So they're calling their own they're a shareholder and they are calling their own shareholder meeting. It's not the official shareholder meeting. They're gathering, they're calling right invitation going out to all shareholders to attend this meeting. and look, they're doing this quite seriously. That you they have expensive lawyers, the hired O Copy Partners, which is a really high end, really good, you know, they're badass proxy solicitor. so they're quite you know, they got a commitment to the bid here. what's w a couple other things that are worth noting about, you know, why they're kind of doing it this way is Voya It's just real. Yeah. Mm-hmm. in its bylaws does not allow shareholders to demand a special meeting or to conduct written consent solicitations. So th the only way if Toms wanted to, you know, do this in the normal channels, they could do anything is to, you know, put this up is ma possibly as a fourteen A eight, but I don't see how that would happen. Right. Or fourteen they could they or they could do it their own, you know, universal proxy, but they would still be waiting for Or something, right. Well you'd you have to wait 'til mid next year. And and there's for whatever reason that Toms has not quite yet expressed, there's a sense of urgency that they do we know when this ne when this shareholder meeting is taking place? Okay. But so the so the point is that the sh this is just not this is not an official company meeting, but nobody can stop a shareholder from just saying, Hey shareholders, want to get together on Zoom? Like like there's no mechanism to stop them. Not yet. Not yet. They they've only filed a pro Wha w Well that was that would that was my that was my my qu one of the questions I had. I I can't think of a reason why this would be illegal. It can't possibly be. I mean, like, well, first of all, the the interesting thing is that back in the day, now I'm not a legal historian, but my understanding is that back in the day, like early nineteen hundreds, late eighteen hundreds, it actually wasn't unusual for stockholders to kind of like do things like form stockholders' committees that would investigate the board or take some kind of action, like essentially on their own without bo board sanction. So this is really a throwback to that. But certainly Yes. Yes. Sure. Like there's no possible way that like it can be like that would be a First Amendment problem. Of course, they have the right to assemble if they want to. It doesn't necessarily it it it right, it right, exactly. It doesn't have any legal significance in the sense it can't bind the company in any way. It's not an official meeting, but Voyak can't possibly like invoke the law to prevent shareholders from getting together. Right. Right, yeah. People and right. Especially 'cause it's non binding. There's like nothing right. Right. Well and Voya Voya has Voya has said that they're planning on seeking some sort of regulatory relief or something. I don't know. So so Tom sent out its preliminary proxy and then Voya immediately launched says a news release What? I would be so happy. I want them to s I really want them to sue to try to enjoy in this so that the so that Toms can make a right of assembly first amendment argument. Please, please, please. maybe. that'd be fun. Yes, right. So so but that was Voya's news release was saying we're exploring regulatory options or something like that. And you know, they sent out, you know, this is not sanctioned, you know, this is not the company. Right. So so the other question is, you know, what else could Voya do? Well, Voya will Well Voya could solicit an opposition. Okay. And I if I was advising Voyager and I wrote this, I'd say, why, Bob? Yeah. Zoom meeting. This is cra it's what a w c waste of money. Let the shareholders meet. There's nothing binding about this. All they're doing is basically assessing sentiment, which we'll talk about in a minute. Okay. Just let meet. Voya is undoubtedly sufficiently concerned about what this looks like and its own image that it will clear it's got it will almost certainly solicit an opposition. They're gonna hire industry, they're gonna hire some major solicitor. Right. I know, but they're stuck. I mean, but I think that like that's exactly the problem. I don't think they can I mean, I don't know. I can't I can't swear they won't find some way to stop it, but it it it does seem like that's it'd be very difficult to do. So now you're stuck. If you do nothing, there's a chance you get this God knows what the numbers look like. No confidence vote looks really bad for the board and invites further activism. But if they solicit an a i against, they're sort of validating the meeting, validating this tactic. Right. Yeah. Right. That's a yes, exactly. And and which which is which is also bad. It gives Toms more credibility. And what if they still lose? Well, so so here's here's you know, the likely outcome well, first let's talk about the you know, what the vote will mean. And so for for what it's worth, Tom's has said there's a voting standard. Every time you you know, put one of these out, you gotta say w you know, how do the votes count? And they've basically said they're gonna count the votes for and the votes against. Broker non votes don't count and so forth. Y right. And so so so Yeah. And not not the and they're not and not absta abstentions don't part of it. They can make up any voting standard. They could say one third and it means it passes. It's not a real meeting. Course. Right. Yes, correct. so so they're and they said they'll report the results publicly, they'll report the results to the company. I would kind of expect if it starts to go really badly, they'll just kinda quietly walk away for this. Yeah, that would be that would be kinda silly. but Yeah. Quietly let it fall away. Well, I gotta think they wouldn't do it unless they thought from informal conversations. Yeah, they probably have so well so and they've already started criticizing the company and so forth. And and it and it'd be really easy if you're a shareholder who's sort of seen, you know, five or six or eight years of of mediocre share price performance. you know, it's non binding. It's you're not vo it's not like voting against directors. You could sure you could vote in in in in favor of the resolution. Yeah. The only thing they're saying is that you might, at some future date, support an actual proxy contest. Well, that's that's what's interesting about this is that Tom's is spending again, and I think you know in all the proxy statements you have to say what the expected co if you're in in contested ones you have to sort of put out a number about how much you're planning on spending. And and it's it's it's it's You don't have to do any of that. I don't even think the proxy rules apply. The proxy rules apply for a vote. This isn't really a vote. Exactly, they didn't. I mean I I understand why they want to, but like they're not soliciting their vote at an actual shareholder meeting. You don't have to Right. Well that's right, yeah. I'm not sure they even had a file proxy statement on this. But they they but they did. Right, exactly. So they've said they're gonna spend five million dollars on this. And again, those numbers half the time are all fictional anyway. but anyway, so yeah, five million dollars on this vote. Which is i i i if they were to earn the kind of the standard one percent on their position, that's signific that's that's decently more than the fees that they're gonna earn from their limited partners on this. So they're spending five million dollars to potentially Yeah. I did not know that. learn what shareholders kind of think, which they could do from making a few calls. So Right. Right. Well, they wanna may wanna I mean presumably they think I mean, I don't know. I don't know how they game this out, but maybe they think if they can make a show of force to Voya, they can bring Voya to the table and that would be more ch and that could be done more cheaply than a for real actual proxy contest. Right. Well that's the thing, is that is that, you know, if this were to somehow settle, I don't know what settlement would look like. It's not like you're settling for board seats or something like that. They'll probably well, th their their broad demand was to kind of break up the company, do some sort of a strategic review. You know, so Voya could promise that and do it and you know, half the time those those don't even wrap up or, you know, don't get you anything meaningful. and then that might make, you know, the shareholders that voted for this happy. I'm sure they have a demand. Okay. Mm-hmm. The on the other hand, this is where this could be really interesting. This is kind of like a dry run of a proxy contest. Okay? So Yeah, exactly. And it it sh and it it brings the board to the table if if it's successful. Yeah, right, yeah, absolutely. It gets the board certainly got the board's attention. Okay. But so what's gonna happen is Tom's is going to, you know, spend this kind of money and they budgeted five, they don't have to spend all that. Okay? And th they'll start to unc and while they've said they're going to disclose the votes, the aggregate vote publicly, they're going to learn and they're gonna have in depth discussions with a lot of shareholders in a kind of I'm not gonna say protected But yes, sort of protected because it's a proxy solicitation way. And they're going to be able to learn all sorts of stuff about what shareholders are thinking. That information, they don't have to, and would be crazy to think that they would share that with the company. So they're going to talk to you know dozens or potentially hundreds of shareholders through Ocopy and learn all this about what you know, really in depth information about shareholder sentiment that they might not otherwise have been able to. Hmm. Hmm. Yeah. get in a proxy contest. And and Voya's gotta know this. That they're gonna have one very smart shareholder about what's going they're gonna know more Voyous Toms is going to know more about the Voya shareholder base than Voya knows. you know and and even though shareholder support like for say on pay and directors was overwhelmingly positive in the past you know two, three, four years, Toms will be able to start to you know level some criticism against the company. and hey, you know, what have you thought about this, that, or the other thing and so forth and and probably get attention from some of these share there's undoubtedly gonna be some shareholders are gonna I don't what this looks like, you know. The bid ne big indexers will probably say we have no time for this. This is you know this isn't for us. but they might not. They could they could get interested in this. We'll sort of see what happens. That's why Right, yeah. I I mean it it really th the thing is that it just raises so many questions for me about like the legal standards here. Given that it's not really a shareholder vote. Do the act do the index funds even have to report how they voted? I mean, it's not really a vote. Yeah. Yeah. this is not I I don't think this is an NPX. This is not report on B N P X. Like I d like none I don't think any of the proxy rules apply. They're it's not really a vote. They can choose to follow them b for their own reasons, but it's not a vote. I mean It's interesting. Will the will the proxy advisors do an analysis of this? Will they weigh in? I'm I don't know. I mean, how do you vote on this anyway? You don't have to. This is nothing. Right. Anyway. Yeah. But so anyway. So that's why this was could go in a couple different directions. And again, it you know, if the vote's close, what does that mean? It it's really hard to understand what what what constitutes a successful vote here. You know, is a majority in favor after all the No, they're okay. For your pretend meeting. Yeah. Right. overwhelmingly supportive votes of management over the past few years. Is that is that meaningful? Or is the majority in favor of this vague resolution meaningless? And I don't know. It it's really gotta be about participation rates because the reality is that since this isn't actually a shareholder meeting, you're probably only gonna bother to vote if you're go voting with Toms. So they could have win a majority of those voting, but if the number of p actual shares voting is one percent, that's meaningless. So it quart like meeting a certain so the number who actually participate in this matters a lot. Yeah. Yeah. That's a very good point. Right. Yeah, there's there's no quorum here. It's just whoever whoever shows up. So anyway. All right, so that's Tom's. So we'll have to sort of see when they schedule this. Again, it's only at the preliminary proxy stage. but I am keenly interested to sort of see what Okay. you what other filings look like and you know, they got a website if people want to look. there's a whole this is a big deal. They've sp I mean, you know, Tom's to their credit, Tom's is taking this quite seriously. And this may this this may be the only th this maybe, you know, un unless they wanted to wait many months for a shareholder meeting that if there was a threat that Voya no no undoubtedly try to postpone, maybe this is the best thing they could do. So anyway. all right, so we'll we'll stay tuned on this one. Yeah. Okay. No, of course, I mean I I understand why. Hmm. Yeah. Okay. Cool. Let's let's wrap up. How about that? This is Shareholder Primacy, hosted by Ann Lipton and me, Mike Levin. I'm an independent activist investor and advisor to investors about their activist situations. Anne is professor of law and the Lawrence W. Demuth Chair of Business Law at the University of Colorado Law School. You can find me, Mike, at the activistinvestor.com and Anne at law.colorado.edu. Thanks for listening. We'll talk again soon. All right. Let's stop this crazy recording.