Medley Capital Corporation (NYSE: MCC), a publicly traded business development company, has responded to a move by NexPoint Advisors LP to elect two independent director nominees to Medley’s board at its June 4th annual meeting. Medley Capital is urging shareholders to vote for incumbent directors Seth Taube and Arthur Ainsberg, and against NexPoint’s nominees Mark Goglia and Stephen Mongillo.
Medley stated that Taube and Ainsberg “bring deep institutional knowledge of the BDC space, financial services sector and credit markets, and have the required expertise and skill sets to drive long-term shareholder value.”
As previously reported, Taube and Ainsberg were recently found guilty of breaching their fiduciary duties to shareholders by the Delaware Chancery Court after being sued by stockholder FrontFour Capital Group over the proposed merger between the company and its affiliates Sierra Income Corp and Medley Management. The court halted the merger vote until investors were provided with corrective disclosures on the deal.
Sierra, a non-traded BDC, is seeking to merge with Medley Capital and then acquire Medley Management, with Sierra being the surviving company that would be structured as a publicly-traded BDC. Medley Capital and Sierra are both controlled by Medley Management.
Medley Capital and FrontFour also agreed to settlement terms that included amending the proposed merger agreements to include a “go shop” process to solicit competing proposals.
In its recent statement, Medley said that “NexPoint’s nominees could prove disruptive to the pending go-shop sales process.”
The go-shop process is being overseen by FrontFour cofounder David Lorber, who, along with Lowell Robinson, the former CFO and COO of online advertising network MIVA Inc., were appointed to Medley’s board and independent special committee after independent directors John Mack and Mark Lerdal abruptly resigned from their respective roles. Lorber now serves as the chair of the special committee.
Medley also said that a vote for the NexPoint nominees is not in shareholders’ best interest, claiming that “NexPoint is highly conflicted and has proposed to assume control of MCC’s external management contract and capture value that rightfully belongs to MCC and its shareholders.”
NexPoint submitted a competing proposal back in January to the Medley Capital and Sierra special committees seeking to replace Medley Management by establishing a new investment advisory agreement with the surviving company of the merger. The proposal was rejected by both companies.
Medley also accused NexPoint and its affiliates have a “concerning track record, which [they] believe would pose significant and unnecessary risks to MCC shareholders,” and referenced a number of lawsuits, articles, and regulatory actions relating to NexPoint affiliate Highland Capital spanning from 2007 to 2019.
Last week, two Independent proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis, issued reports recommending that Medley stockholders vote for NexPoint’s independent director nominees and against incumbent directors Taube and Ainsberg.
ISS concluded that “further change at the board level is warranted” due to “inferior shareholder returns during the incumbents’ tenure,” “troubling operating performance,” and “the Delaware memorandum opinion that found the company’s nominees breached their fiduciary duties.”
The proxy firm also expressed concerns about the MCC director nominees, including their “conflicted and underperforming investment management” as well as their role in “oversee[ing] negative total shareholder returns.”
Similarly, Glass Lewis concluded that “NexPoint has made a compelling argument in favor of removing and replacing the directors up for election at the 2019 annual meeting.”
Glass Lewis calls the conduct of the MCC directors “appalling,” and said that the “Delaware decision provides sufficient evidence that the corporate governance at MCC is fundamentally broken and speaks to a clear need to overhaul the board.”