An investment vehicle affiliated with NexPoint Advisors L.P. has issued a demand to Medley Capital Corporation (NYSE: MCC) to make its books and records available for inspection. The investment vehicle, Highland Select Equity Master Fund L.P., which is an owner of MCC common stock, seeks to investigate potential wrongdoing in the adjournment of the special meeting of stockholders, originally scheduled for February 8, 2019.
Select Fund raises concerns about the Medley’s board and their actions leading to the meeting adjournment, including among other things, the decision to amend the company bylaws on February 6th, 2019, which Select Fund believes improperly enabled the adjournment, which may not have passed a stockholder vote.
The agenda for the February 8th meeting included a shareholder vote on the proposed merger with affiliate Sierra Income Corporation, where Sierra plans to acquire Medley Capital and Medley Management (NYSE: MDLY), 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, a publicly-traded asset management firm.
Medley Capital announced on February 5, 2019 that it intended to adjourn the special meeting “in light of the U.S. government shutdown” that occurred between December 22, 2018 and January 25, 2019.
Medley said that the government shutdown hindered the review and/or approval of documentation required to close the mergers.
“At the time of the [meeting adjournment] announcement, the bylaws did not grant anyone other than stockholders the ability to adjourn a stockholders’ meeting, meaning that, the vote of a majority of stockholders (even if less than a quorum) would have been required to adjourn the [special] meeting,” said Select Fund.
“Select Fund believes the amendment changed this requirement without the consent of stockholders, giving “the chairman of the meeting… the authority in his or her discretion to regulate the conduct of any such meeting, including, without limitation, convening the meeting and adjourning the meeting (whether or not a quorum is present)…,’” the fund added.
The fund believes the decision to adjourn the meeting and the amendment were carried out in the interest of Medley Management and its stockholders to the detriment of stockholders of Medley Capital.
Select Fund said that government shutdown is not a viable excuse for the special meeting adjournment, and believes Medley delayed the meeting because of the likelihood of a vote against the merger if the meeting to proceeded as scheduled. “The board, complicit in this delay, appears to be in violation of its fiduciary duties by promoting the interests of Medley Management and preventing Medley Capital stockholders from rejecting the merger.”
On January 24th, NexPoint Advisors submitted a competing management proposal related to the merger, which Medley and Sierra declined to pursue. NexPoint was seeking to replace Medley Management by establishing a new investment advisory agreement between it and the surviving company.
Independent proxy advisory firms Glass Lewis & Co. and Institutional Shareholder Services, as well as FrontFour Capital Group LLC, a significant Medley Capital shareholder, recently recommended that Medley Capital shareholders vote against the proposed merger in light of NexPoint’s competing proposal. Proxy advisory firm Egan-Jones Ratings recommended that shareholders vote for the merger.
Earlier this week, NexPoint Advisors announced plans to nominate two independent directors at the Medley Capital annual stockholder meeting, which has not been scheduled at this time, if the proposed merger is not approved by shareholders at the rescheduled special meeting on March 8, 2019.