Yucaipa and Barnes & Noble: The Facts on the Ground

We have been blogging about the Delaware decision to uphold a poison pill that effectively prevented Yucaipa, an insurgent shareholder, from reaching an agreement with other shareholders on a common slate of directors and a sharing of expenses.  In upholding the pill, the Delaware Chancery Court allowed the pill to tilt the playing field in the proxy contest in management's favor.

The proxy contest nonetheless continues, with the outcome hanging in the balance.  Both sides seem to have blocks that represent approximately 35-40% of the shares, with the remaining unaffiliated shares getting to decide the outcome (Yuciapa is seeking a minority of the board since B&N has a staggered board and is therefore electing only one third of the total number of directors). 

According to the WSJ, the proxy advisory firms have begun to weigh in and they have supported Yucaipa.  Institutional Shareholders Services Inc. had come out in support of Yucaipa and its slate.  Moreover, while these firms do not affect all shareholders equally, they seem to have disproportionate influence among mutual funds.  Apparently, many of the unaffiliated voting shares are held by these types of entities.  As the article notes:

• The recommendation is a blow to the bookseller's efforts to stave off Mr. Burkle. With the parties siding with Mr. Burkle or Mr. Riggio each owning around one third of the company's shares, the deciding vote probably lies with institutional shareholders and index funds.

• That means the recommendation by ISS, the largest and most influential proxy advisory firm that has institutional investors as its client, could play a key role in determining the outcome of the Barnes & Noble proxy fight.

The vote is scheduled for Sept. 28.