Tegna Contest Becomes First All-Virtual Board Fight

(Bloomberg) -- The boardroom battle at Tegna Inc. is expected to come to a head next week in what is shaping up to be the first significant proxy fight settled at a virtual meeting. How it plays out will affect other board votes this season.

The broadcaster has been locked in a months-long battle with its largest shareholder, Standard General LP, which owns 12% of the company and has been seeking four board seats. The coronavirus threw a wrench into the proxy fight.

Face-to-face meetings with key investors were replaced with phone calls as the virus spread, according to people familiar with the matter, who asked not to be identified because the procedures are private. Pivotal pitches to investor advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co. were also moved to conference calls, they said. While not ideal, it was manageable and not unheard of for these types of meetings to be held over the phone.

What makes the Tegna fight unique is that this week the company announced it would hold its annual general meeting on April 30 virtually, bringing the battle into uncharted territory.

The changes being implemented will impact other upcoming meetings, including a proxy fight at USA Technologies Inc. being held virtually on the same day as Tegna. Other companies targeted by activists also will also likely see their votes done virtually as long a social distancing protocals are in place. That includes Commvault Systems Inc., Merit Medical Systems Inc., HC2 Holdings Inc., Mednax Inc. and GCP Applied Technologies Inc.

To be sure, these issues won’t matter for Tegna, Standard General or any of these other companies if they decide to settle before their meetings.

“Tegna is putting the well-being of its employees and shareholders first, and has worked hard to design an effective virtual annual meeting process,” a representative for Tegna said in a statement.

Primary Issue

The primary issue both sides face is that Broadridge Financial Solutions Inc., which prepares, ships and counts most of the proxies for U.S. companies, doesn’t have a platform to allow for voting at a virtual meeting in a contested situation, the people said. While it can do so in uncontested situations, it lacks the technology to do so when there are two competing director slates.

“Thus far, none of the meetings have been contested,” a representative for Broadridge said in an emailed statement. “We have been asked to provide a solution for ‘contests’ that provides online meeting attendance. Every shareholder who is entitled to vote will be able to vote and Broadridge’s reporting of the votes we process is subject to extensive audit and third-party review.”

Concerns are also being raised around whether investors will be able to adequately participate in the Tegna meeting with the technology in place, the people said.

Practically, this means that votes will have to be turned over to the inspector well in advance of polls closing. While most institutions and investors already do this, it runs the risk of some votes not being counted, that mistakes will be made, and increases the risk of litigation, the people said. There are also concerns that mail-in ballots won’t arrive in time because of the strain the virus has put on the postal system, they added.

“No one ever anticipated we’d ever have to do this,” said Bob Marese, president at MacKenzie Partners Inc., a New York-based proxy solicitor, adding that virtual meetings will become the norm in the coming months.

“It has just become a very practical necessity,” he said. “Faulting Broadridge for not anticipating this would be like faulting New York State for not having enough ventilators.”

Virtual Meetings

Virtual annual meetings are not uncommon. Hundreds are held every year, primarily in the technology sector. But those are for meetings where directors stand for election unopposed. There has never been a significant proxy fight held at a virtual meeting, which has piqued the interest of the industry.

Marese said he expects it will also be more difficult for proxy solicitors get investors to switch their votes in the lead up to the meeting because many are not in the office, nor are the bankers or brokers they may need to change their vote.

This has advisers in the Tegna fight reaching out to investors to ensure that they’re voting by phone or over the internet well in advance of the meeting, the people said.

It is also unclear how things will proceed if the vote is too close to call. Generally, close fights move to a so-called “snake pit,” where proxy solicitors go into a room and physically go through each individual voting card. It’s unclear how a snake pit would proceed at this point.

“It’s a virus pit at this point,” said Kai Liekefett, partner and chairman of the shareholder activism practice at law firm Sidley Austin LLP. “You literally need to get people into the room and go proxy card to proxy card.”

He said some sort of workaround would need to be implemented. At Tegna, the voting inspector would have to send all the cards electronically to each side to evaluate, the people said.

There is some upside to running a proxy fight this way, Liekefett said.

“Previously, we’d have to plan trips to New York, Boston, to Pennsylvania, or Austin,” he said. “Now, it’s significantly easier because you just have to do 15 phone calls.”

He said the companies he advises on activism defense will also be looking very closely at how major institutions such as BlackRock Inc., Vanguard Group and others vote to determine how that might impact future fights.

“Unless there are extraordinary circumstances like really terrible performance or crimes against corporate governance, we’d expect that they would get a pass this year,” he said.

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