Institutional Shareholder Services (ISS) and Glass Lewis, two independent proxy advisory firms, both issued reports recommending that stockholders of Medley Capital Corporation (NYSE: MCC) vote for NexPoint Advisor’s independent director nominees at the June 4, 2019 annual meeting of stockholders.
NexPoint has been a thorn in Medley’s side since submitting a competing management proposal back in January and publicly criticizing its planned merger with affiliates Sierra Income Corporation, a non-traded BDC, and Medley Management (NYSE: MDLY), which controls both Sierra and Medley Capital.
In their proxy analyses, both ISS and Glass Lewis both support the removal of the two incumbent directors, Seth Taube and Arthur Ainsberg, who are up for re-election. NexPoint has nominated Stephen A. Mongillo and Mark T. Goglia as independent directors of Medley Capital, a publicly traded business development company.
ISS concluded that “further change at the board level is warranted” as a result of “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.”
ISS noted that NexPoint “has presented a compelling case that…its nominees are the best option available to achieve that change.” 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.”
In its report, 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.”
As part of the merger proposal, Sierra seeks to merge with Medley Capital, and then merge with Medley Management, with Sierra being the surviving company that is structured as a publicly-traded BDC.
Proxy advisory firms Glass Lewis & Co. and Institutional Shareholder Services, as well as Front Four Capital Group LLC, a significant Medley Capital shareholder, criticized Medley’s handling of NexPoint’s offer, which was rejected by the company, and the proxy advisory firms urged shareholders to vote against the merger.
FrontFour later filed a class action lawsuit against Medley and its board in the Delaware Chancery Court, alleging breach of fiduciary duties to stockholders in connection with the merger. Medley Management and Sierra were also named in the lawsuit for allegedly aiding and abetting the breaches.
The court ruled that Medley Capital’s directors breached their fiduciary duties in entering into the proposed merger and halted the vote until investors were provided with corrective disclosures on the deal.
Medley Capital and FrontFour later agreed to certain settlement terms in connection with the court’s decision that included amending the proposed merger agreements to include a “go shop” process to solicit superior transactions.
Additionally, if the merger is consummated, a settlement fund will be created, consisting of $17 million of cash and $30 million of Sierra common stock, and distributed to eligible members of a class of MCC stockholders.
Following the resignations of John Mack and Mark Lerdal, FrontFour co-founder David Lorber and Lowell Robinson, the former CFO and COO of online advertising network MIVA Inc., were appointed to Medley Capital’s board and independent special committee, with Lorber being appointed as the chair of the special committee.
The three companies have postponed their respective special meetings of stockholders on the proposed merger and anticipate holding the meetings no later than the third quarter of 2019.
NexPoint Advisors L.P. is an SEC-registered investment adviser to a suite of alternative investment vehicles, including a closed-end fund, a business development company, and an interval fund, among others.
An affiliate of Highland Capital Management, NexPoint is part of an investment platform that serves both retail and institutional investors. NexPoint’s investment capabilities include high-yield credit, real estate, public equities, private equity and special situations, structured credit, and sector- and region-specific verticals build around specialized teams.