A Delaware court last Thursday ruled in favor of some of the dissident Aerojet Rocketdyne [AJRD] directors’ claims against the company’s CEO Eileen Drake and her faction on the board but the upshot is that a shareholder meeting and vote already scheduled for June 30 will determine control of the rocket-making company going forward.
“A disclaimer is necessary,” Vice Chancellor Lori Wills of the Delaware Court of Chancery said in her June 16 decision regarding her ruling in partial favor to Aerojet Rocketdyne Executive Chairman Warren Lichtenstein and the company directors allied with him, who earlier brought claims against the Drake faction for improper actions related to the upcoming board election. “My findings in favor of the plaintiffs should in no way be taken as an endorsement of one faction’s electability over the other. In my view, both slates are comprised of highly qualified, impressive, and dedicated directors.”
Lichtenstein’s investment firm, Steel Partners [SPLP], owns a 5.6 percent stake in Aerojet Rocketdyne, and controls half of the company’s eight-member board. The other four directors, which include Drake, are allied with her.
Will, in her decision, agreed with the plaintiff’s claims that Drake and her faction did not have legal authority to take actions against Lichtenstein and his faction given that the Aerojet board was equally split and Drake doesn’t control a majority of the directors.
A Feb. 1 press release issued by Drake on behalf of the company challenging Lichtenstein’s proposed slate of directors on the grounds that his “disruptive” proxy battle might be driven by his desire to secure his board seat and to influence an investigation into his conduct as executive chairman that was being conducted by Drake’s faction. Will found that the release wasn’t authorized given the split board and has ordered a corrective disclosure that both factions will have to agree to by June 20.
“Moreover, the weight of the evidence indicates that it was a negotiating lever to pressure Lichtenstein to withdraw his slate,” Will wrote in the 66-page decision.
Will also voided a $250,000 retainer payment made by Aerojet to a law firm aiding the Drake faction given that such a payment wasn’t authorized. However, she pointed out that the firm, Gibson Dunn, never drew down on the retainer and is now acting pro bono, which is free, for Drake and her faction and there is commitment for Aerojet to pay the defendants’ legal fees.
Lichtenstein also charged that Drake was using Aerojet employees in the proxy battle but Will found that this was only the case when the CEO received help transferring shares of her stock to a record name. In the other cases, the employees were working for Drake on their own time, Will said.
Will denied Lichtenstein’s claim to recover legal fees from Drake and her faction in his claims that led to the recent court battle. She also denied a claim to invalidate proxy votes already cast in advance of the June 30 special meeting, saying shareholders have been aware of the opposing sides arguments and litigation for months actions and can always revoke their submitted ballots and vote anew.
Lichtenstein maintains that Aerojet’s overall financial performance has been slipping under Drake’s leadership and has criticized her for not having a vision for the company last year when it looked like Lockheed Martin’s [LMT] pending acquisition of the company might fall through, which it did. The Federal Trade Commission in January moved to block the deal, leading Lockheed Martin to withdraw its purchase agreement.
Last Friday, he released a statement asking Drake to pre-release Aerojet’s financial results for the first five months of the current fiscal year to give shareholders transparency into her handling of the company’s finances. Through the first three months of the year Aerojet’s net income and sales were higher, although free cash was an outflow of $77.2 million versus a $73.2 million outflow in the same period a year ago.
Drake has countered that the company’s shareholder returns are up 183 percent since she became CEO in 2015, beating the S&P and peers. By contrast, she says, from the time Lichtenstein joined the board in 2008 until her permanent appointment in 2015, Aerojet’s returns were more than 30 percent below the S&P and peers.
Lichtenstein’s candidate slate of directors for the upcoming shareholder vote include himself, Mark Tucker, a former Aerojet chief operating officer under Drake and who is also his choice to be the new CEO, former Defense Department Comptroller Tina Jonas, Joanne Maguire, a member of several corporate boards and former chief at Lockheed Martin’s space division, Aimee Nelson, a former banker and current board member of a private apartment rental operator, Martin Turchin, a current Aerojet board member allied with the executive chairman, retired Navy Vice Adm. Mathias Winter who was the program executive officer of the DoD’s F-35 joint fighter program, and Heidi Wood, the head of business development and growth at CAE Inc. [CAE], a provider of aircraft simulation technologies.
Drake’s slate includes herself, incumbent directors Lance Lord and Kevin Chilton, both of whom are retired Air Force generals, Thomas Corcoran, also a current board member, and independent nominees Marion Blakey, a former head of the Federal Aviation Administration, Gail Baker, a former executive at Collins Aerospace, which became part of Raytheon Technologies [RTX], retired Marine Gen. Charles Bolden, a former head of NASA, and Deborah Lee James, a former Air Force secretary.
Will highlighted a challenge for any board composed of an even number of directors where members are intractably split.
“This case presents a cautionary tale about the perils that can befall a board with an even number of directors,” she wrote.
Drake and Lichtenstein are both proposing slates of eight directors, with shareholders instructed to vote for one slate or the other.