Real estate-focused activist investor Jonathan Litt failed in his effort to install two dissident directors onto the board of Taubman Centers (TCO) an annual meeting Thursday, a major blow to the insurgent manager's push for a sale of the shopping mall operator.
A key impediment was the Taubman's family's large 30% economic and voting interest in Class B shares, according to Litt. The family, which had been fighting against Litt and his fund, Land and Buildings Investment Management, appear to have voted their entire stake for the incumbent directors.
The activist fund had been seeking to install Litt and Charles Elson, director of the Center for Corporate Governance at the University of Delaware. In a statement, Land & Buildings said that a majority of shareholders outside the Taubman Family supported the Land and Buildings' director nominees, but it wasn't enough to get them elected.
The REIT-focused activist fund has been urging the board of Taubman Centers to evaluate strategic alternatives such as a "management-led privatization or a sale" of the company.
In addition, it appeared that an 11th hour move to remove a key anti-takeover device, its staggered election of directors by making board elections annual, was enough to convince at least two large institutional investors to back the company's slate. According to a person familiar with the situation, two large index funds, which together own about 19% of Taubman Centers, agreed to back the incumbent slate after the company promised to refresh its board and also make elections of all directors come up every year.
The company on Tuesday, just two days before the election, agreed to "accelerate" its board refreshment and transition to annual director elections. The move was clearly designed to placate disgruntled investors.
Governance experts applaud companies that remove staggered boards. However, it's unclear how much influence investors will have on the election of directors at Taubman even if all board nominees come up for a vote every year because of the Taubman family's large 30% voting control.
Nevertheless, it doesn't appear that Litt's battle is over yet. The activist investor had filed a lawsuit that is still pending at the United States District Court for the Eastern District of Michigan against Taubman, arguing that the Taubman's voting position should be limited to 8.23% based on the company's charter, not 30%. The activists in their statement suggested that if the Taubman family voting position had been limited to 8.23% that the activists would have succeeded in having their slate elected to the board.
However, it is unclear whether Litt, if successful with the lawsuit, will be back next year with another slate of nominees. "As long as the Taubman family's 30% voting interest persists, shareholder voices will never be truly heard," Litt said in a statement.
Bloomfield Hills, Mich.-based Taubman owns, manages or leases of 21 regional, super-regional and outlet shopping centers in the U.S. and Asia.
Litt has criticized the management of Taubman Centers, arguing that the REIT trades at a significant discount to its net asset value and has "horrible" corporate governance practices and a "poor" capital allocation strategy.
The result comes after the two major proxy advisory firms, Institutional Shareholder Services Inc. and Glass, Lewis & Co., last month endorsed Litt and Elson for Taubman's board, according to reports obtained by The Deal.
In a report obtained by The Deal, ISS said it supports both Litt and Elson for Taubman Centers board, arguing that the REIT has underperformed both a peer group and a key index on a three and five-year basis.
The proxy advisory firm said it makes sense to prioritize adding a governance expert to the board "given the breadth of the company's governance issues." Also, ISS said that adding Litt to the board would bring an "investor perspective," adding that the activist fund has "raised valid points regarding the company's performance."
The other major proxy advisory firm, Glass Lewis took issue with Taubman Centers governance practices, including its employment of anti-takeover staggered director election practice and dual-class voting structure.
"Based upon our review and interactions, we view the Taubman board as an old-style board in need of further change and refreshment beyond the largely cosmetic and reactive changes it has made to date," Glass Lewis wrote in the report.