Thursday, July 24, 2003

California Inc's Proxy Fight-The recall petitions have been approved by California's Secretary of State yesterday they had 1.3 million valid signatures, well over the ~900,000 needed to trigger an election; Lt. Gov. Bustamante now has to schedule a recall election 60-80 days from now. He's ducking and passing the buck on the question on whether a replacement election would run at the same time. However, the interesting comment of the day came from the Gray Gentleman, calling the recall effort "a hostile takeover by the right." Davis is trying to paint the recallistas as Gordon Gekko, but he may be speaking more truth than he'd like to admit. Not about the recallistas, but about his leadership of California. Let's remember what a hostile takeover is in corporate finance; it's when someone that the current corporate management doesn't like is trying to buy the company. If management of the target company likes the acquirer, it's a friendly merger/takeover. It generally happens when a company has been mismanaged and an outsider is willing to pay a significant premium above the current market price in order to get 50.1% of the shareholders to sell the stock to him so that he can run the company. If the stock it merely under-appreciated, the acquirer can buy a small, non-controlling stake without jacking up the stock price in order to do so; to go for 50+% control generally means the current management sucks. The incumbent management has the power of inertia and incumbency on their side; they can count on passive investors to give them their proxy and can use the PR machine of the company to bad-mouth the would-be-acquirer and to give the best spin on their tenure. This does look like a hostile takeover, for the shareholders of California Inc. deserve better management. The current CEO has run the corporation into the ground with bad strategic decision-making. A bloc of dissident shareholders have put a proposition forward and they'll be a proxy vote this fall to bring in a new CEO.

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