MONY Group, trying to win approval of its planned takeover by AXA Financial, the large French insurance company, has persuaded a federal judge to temporarily block a tactic used by an institutionalshareholder trying to keep shareholders from approving the merger.
But Judge Richard Holwell said at the U.S. District Court hearing that the issue was a novel one and promised a definitive ruling on Wednesday. He cautioned that his action Friday, in which he extended a temporary restraining order against the tactic, should not be read as indicating how he would rule in the end.
At issue is whether institutional shareholders can send out copies of a company’s proxy ballot card with letters recommending a vote against management in a proxy battle.
The Securities and Exchange Commission has informally taken the position that such a tactic is legal, but another federal judge, Loretta Preska, issued a temporary restraining order against Highfields Capital Management on Wednesday night after a telephone hearing. Preska heard the case then because Holwell was not available.
AXA has agreed to pay $31 a share for MONY, the former Mutual of New York, a price that dissenting shareholders including Highfields, a Boston hedge fund, consider too low.
Under an SEC rule adopted in 1993, investors can send communications to one another recommending votes without having to go through a complete proxy solicitation process. It would be too late for Highfields to do that now, with the shareholder vote set for Feb. 24.
Without going through that process, it would clearly be improper under the rule for Highfields to send out its own proxy card, asking that it be allowed to vote for the shareholders. But it wants to send out a copy of the card sent by management. That would make it easier for shareholders to change their vote, or to vote for the first time if they had not already done so.
At a hearing Friday, James Smith 3rd, a lawyer representing MONY, argued that the law was clear that sending out such cards was not legal, and that the judge was not bound by the SEC’s informal opinion.
R. Todd Cronan, a lawyer representing Highfields, said that Highfields had acted only after learning from SEC staffers that its actions were proper, and he added that the wording of the rule did not bar such offers.
A ruling by Holwell would be the first on just how that rule should be interpreted, and could have a major impact on how easy it will be for shareholders to campaign against management in shareholder votes.
Because MONY has a large base of individual shareholders, the ease with which they could change their votes could be crucial if the election is close.
The fact the company chose to sue Highfields to try to stop the cards from going out may indicates that it is worried that it may have trouble getting approval by a majority of its outstanding shares.
