ISS, Glass Lewis urge shareholders to back hedge fund's call for changes at Monro (updated)
12/08/2021 01:46
(Updates to show that the company declined to comment)
By Svea Herbst-Bayliss
BOSTON, Aug 11 (Reuters) - Two powerful proxy advisory firms
support an activist investor's proposal to overhaul the
financial structure at auto service company Monro Inc MNRO.O ,
according to reports seen by Reuters, paving the way for all
shareholders to have a say on hot-button issues where one person
now has veto power.
Institutional Shareholder Services and Glass Lewis have
urged shareholders in the $1.9 billion U.S. car service and tire
centers company to approve a non-binding shareholder proposal
made by hedge fund Ides Capital Management when they vote at
next week's annual meeting.
Monro, publicly traded since 1991, has two share classes.
Its Class C Preferred structure allows one board member, 82-year
old investment banker Peter J. Solomon, to overrule votes from
all other stockholders, including BlackRock, Vanguard Group and
T. Rowe Price. Solomon holds 100% of Monro's outstanding Class C
Preferred shares which make up 0.06% of the total share count as
of the record date.
ISS and Glass Lewis wrote in reports seen by Reuters that
shareholders' voting rights should match their economic
interests, giving all Monro owners a say in decisions like who
will sit on the board.
Getting rid of the dual class structure would "create an
even playing field for all shareholders, as well as a board that
is more responsive to all shareholders," Glass Lewis wrote.
Ides said Monro's "undemocratic and unequal voting rights"
hurt the company's stock price. It has been pressing Monro for
months to improve returns and change operations.
Monro's stock price has risen 7.41% since January and closed
at $57.25 on Wednesday. Still, it has lagged the benchmark
Russell 2000 index by 44.5% over the last year and by 95.6% over
the last 10 years, Ides said in a regulatory filing.
A representative for Monro declined to comment.
"Monro is a textbook example of what can go wrong for
corporate stakeholders when a board fails to uphold that
principle," Dianne McKeever, Ides' chief investment officer
said. "We filed the recapitalization proposal in order to
provide Monro’s long-suffering shareholders with an opportunity
to speak for themselves on the Company's retrograde
governance structure."
If the proposal passes, she said she would expect the board
"to take immediate action to uphold the majority will of Monro's
true economic owners - its common shareholders."
Dual share class structures often give founders more power
and have long raised eyebrows among governance experts
especially as they are becoming slightly more popular with many
new technology companies incorporating them as they go public.
Often there is a provision for the structure to expire after
several years, which has not happened at Monro.
"Many institutional investors support sunsets of seven years
or less because academic research has found that the value
premium that some dual-class companies have when they go public
fades to a discount six to nine years after the IPO," said Amy
Borrus, executive director of the Council of Institutional
Investors.
(Reporting by Svea Herbst-Bayliss; Editing by David Gregorio
and Stephen Coates)
((svea.herbst@thomsonreuters.com; +617 856 4331; Reuters
Messaging: svea.herbst.thomsonreuters.com@reuters.net))