This content is from: Portfolio

The Morning Brief: Jeffrey Smith Says Throw Darden Directors Overboard

Jeffrey Smith is mad as hell and vows not to take it anymore from Darden Restaurants. The founder of activist hedge fund Starboard Value announced he plans to launch a proxy fight to replace the entire 12-member board of directors. “Our director candidates collectively bring decades of restaurant experience, a proven ability to execute, financial acumen, and an unequivocal commitment to respect and represent the best interests of all shareholders,” he states in an 18-page letter to shareholders. Smith also lays out in detail why he plans to replace the board and once again explains why he opposed the company’s decision to sell Red Lobster. He also explains why there is still a lot of potential value in the stock and repeats why the board’s failure to call a special meeting in a timely manner “is an egregious act of shareholder disenfranchisement.” In an interview with CNBC Thursday morning, Smith called this an “exciting opportunity and an aggravating opportunity.”

Three former executives of hedge fund New Stream Capital pleaded guilty to a federal conspiracy charge. According to the United States Attorney for the District of Connecticut, David Bryson, Bart Gutekunst and Richard Peteira face a maximum of five years in prison. According to the government, in November 2007 New Stream launched new feeder funds, one based in the United States and a series of funds based in the Cayman Islands, then announced that its existing Bermuda Fund would be closing, and all foreign investors would have to move their investments into the Cayman Fund. New Stream’s largest investor, however, sought to redeem its entire investment in the Bermuda Fund rather than transfer the account. To avoid losing their largest investor, the trio allegedly orchestrated a scheme to secretly keep the Bermuda Fund open and give priority to existing investors in the fund in an effort to reverse the redemption. They also are accused of not telling investors who had transferred from the Bermuda Fund into the Cayman Fund that the Bermuda Fund was remaining open or that it was being given priority over the Cayman Fund. All three are scheduled to be sentenced in late August.

Paul Singer’s Elliott Associates acquired 40 million shares of Great American Group in a private placement with the provider of asset disposition and auction services, for $0.25 per share. The private placement is expected to close around June 2, subject to the completion of a reverse stock split at a ratio of 1-for-20 and the satisfaction or waiver of certain additional closing conditions. After the deal, various Elliott entities beneficially owned more than 46.1 million shares, or 19.6 percent of the total outstanding shares. Great American’s deal with Elliott—previously a major shareholder--is part of a larger recapitalization involving the private placement and the retirement of $48.8 million of debt at a substantial discount as part of the terms for Great American’s planned merger with B. Riley & Co., an independent investment bank.

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