When is a shareholder meeting not a shareholder meeting? There is currently a proxy fight going on at Texas Pacific Land Trust, and it is really quite something. For one thing, it is a once-in-a-lifetime, or maybe thrice-in-a-lifetime, event: TPL, a publicly traded $5.7 billion company listed on the New York Stock Exchange, doesn't have proxy fights all that often, because its board of directors (technically, board of trustees) has only three members, and they are all elected for life. So if TPL shareholders are dissatisfied with how the company is run and want to elect a new trustee, they have to wait for one of the old ones to die. One of the old ones died this March.[1] And there are some TPL shareholders who were dissatisfied with how the company is run and want to elect a new trustee. It is a weird company, TPL. It is a royalty trust that "was born out of the bankruptcy of Texas Pacific Railway Co." in 1888.[2] The railroad owned a lot of land in Texas, and the trust inherited that land. It became a publicly listed company in 1927 and bopped sleepily along for decades. But "much of the Trust's land is located in the Permian Basin, which is currently at the center of the country's oil and gas exploration and production," and now it is quite valuable; in the last 10 years, oil and gas royalty revenues have increased almost tenfold and TPL has had a total shareholder return of 3,856%. It has become less sleepy, too; it actively buys, sells and trades its land, and in 2017 it launched an operating subsidiary that provides water services. But while it is a $5.7 billion public company, it still has the casual old-timey governance of a 19th-century trust.[3] The trustees are elected for life, and they and the managers don't own much stock in the company. The two current trustees are both lawyers (as you'd expect of trustees), not oilmen or financial experts (as you might expect of oil-company directors).[4] There are no annual shareholder meetings, and there have been only four shareholder meetings in the last 30 years.[5] The annual report is a brisk 23 pages, plus another 23 more pages of financial statements. And so when a trustee job opened up, a few of TPL's big shareholders got together and proposed one of their own for the job. His name is Eric Oliver, he's an oil-and-gas guy, and he runs a fund called SoftVest LP, which owns about 1.7% of TPL's stock. He and his supporters—including a fund called Horizon Asset Management LLC, which is TPL's biggest shareholder, with about 23% of the stock—suggested him to the other two trustees, but they passed and nominated a retired Air Force general named Don Cook as the official candidate.[6] So Oliver and his supporters launched a proxy fight to try to get Oliver elected. Here you can read their proxy statement and one of their investor presentations; here are TPL's proxy statement and one of its presentations. The thrust of Oliver's proposals seems to be less about specific business plans and more about a general sense of incredulity that TPL is run this way, though it is not entirely clear what to do about it. "Create a board of directors" and "provide shareholders with basic rights" are at the top of his list, and he "is committed to fully exploring" converting TPL from an old-timey trust to a regular Delaware corporation, which does seem like the simplest way to do it. TPL announced a shareholder meeting for May 8, and then postponed it to May 22. On May 21, though, TPL got cold feet and canceled—well, "postponed until further notice"—the meeting. It also sued Oliver and his fellow dissident shareholders, claiming that they said a bunch of things in their proxy materials that weren't true, and arguing that it needed to postpone the meeting until those falsehoods were sorted out. This lawsuit—you can read a copy here—is mostly run-of-the-mill companies-complaining-about-dissident-shareholders stuff, and none of the alleged falsehoods seem particularly important. Oliver's explanation for why TPL canceled the meeting is more straightforward; from his response to TPL's lawsuit: As the proxy voting results rolled in, it quickly became clear that Mr. Oliver was amassing an effectively insurmountable lead and was all but certain to win the shareholder vote and be elected trustee. A summary of the proxy voting results that was distributed to TPL and the SoftVest Plaintiffs by Broadridge on the evening of Monday, May 20, showed that Mr. Oliver had received proxies from 47.01 percent of the outstanding Certificates entitled to vote, compared to just 25.7 percent for General Cook. Based on that vote tabulation, Mr. Oliver had enough votes to win the May 22 shareholder vote. … The incumbent trustees did not file this lawsuit to correct some alleged lack of disclosure. They filed it for one reason and one reason only: To manufacture an excuse for trying to cancel the May 22 shareholder meeting, because they knew that if the meeting went forward, Eric Oliver was certain to be elected as trustee. These lawsuit-and-postponement tactics are not uncommon in bitter proxy fights. Ordinarily what happens next is that the dissident shareholders put out a grumpy statement and file their own lawsuit, which they did do here. But they also did something else that you don't see every day. They held the meeting anyway. The Oliver group put out a statement saying "We will see this matter through tomorrow, and invite those shareholders who are in Dallas or who had already made travel arrangements to join us and cast their vote on this important matter." Oliver already had a bunch of proxies that shareholders had sent him, and apparently a lot of people were in Dallas anyway, so he just had the meeting. Awkwardly it was at the offices of TPL's law firm, and TPL had canceled the meeting, but for some reason TPL's lawyers let Oliver use a conference room anyway: Mr. Oliver and dozens of shareholders arrived at the meeting location, and were properly routed by building security and personnel of TPL's counsel to a conference facility on the fifth floor of the building. At 10:00 a.m., shareholders present in person or by proxy convened and conducted the meeting, and conducted a shareholder vote that resulted in Mr. Oliver being elected as TPL's third trustee. That is again from Oliver's response to TPL's lawsuit, which also includes (page 46) a photograph of the meeting. It looks, I have to say, like a shareholder meeting at a law firm conference room. But was it? TPL says it was not a shareholder meeting. It put out a press release that same day: This morning, Mr. Oliver and his attorneys purported to convene a "meeting" that they have attempted to pass off as constituting a special meeting of the Trust's shareholders. It was not. As the Declaration of Trust clearly provides, shareholder meetings may only be called after certain requirements are met, including providing notice and following other procedures. Mr. Oliver's purported "meeting" was conducted in a secretly-booked conference room with no notice whatsoever provided to the vast majority of the shareholders. During his "meeting," Mr. Oliver refused to take questions from shareholders before purporting to hold a vote to elect himself as Trustee, even though fewer than half of the Trust's outstanding shares were represented at Mr. Oliver's "meeting." In light of the Trust's earlier announcements that the special meeting would be delayed, holders of millions of shares have not returned any proxies yet. It is disappointing that Mr. Oliver intends to disenfranchise all these shareholders. Let's assume that Oliver is correct that he got proxies from about 47% of the outstanding shares, and the board got proxies from about 26%.[7] If there was a meeting and all those shares showed up, then Oliver won the election: 73% of the shares is a quorum sufficient to hold a valid meeting, and he got a majority of the shares that voted. It's rare for any corporate election to get close to 100% turnout, so getting 47% of the outstanding shares is ordinarily plenty to win. But that's not quite what happened. The 26% of the shares that sent their proxies to the board didn't show up at the meeting: The board canceled the meeting, took its proxies and went home. It can, apparently, do that. (The other 27% of the shares that didn't send in any proxies also, clearly, didn't show up.) The 47% who sent their proxies to Oliver arguably did show up,[8] but just getting 47% of the vote, in a meeting where no one else shows up, isn't enough to elect a director. It's a technicality—the board avoided a quorum just by calling off the meeting at the last minute—but probably an effective one. Shareholder democracy, never mind publicly-traded-trust democracy, is not all that democratic. But it's a pretty solid polling result for Oliver, and if TPL ever does get around to holding the shareholder meeting, it seems likely that Oliver will win. So it is not clear what they gain by postponing the meeting and suing. They have a good legal argument that Oliver did not hold a valid meeting or win a valid election, but as a matter of shareholder democracy he seems to have the support of the trust's investors, so fighting him forever is a bad look. The dissidents' main complaint about the current board is that its governance isn't great and it isn't responsive to shareholders. When the board cancels and ignores a shareholder vote, that kind of makes Oliver's point for him. On the other hand, it's not all that clear what Oliver would gain by winning. He'd only get one of three seats. On May 8, TPL's two trustees sent some of the dissident shareholders an email (which was marked "privilege/confidential," and which the dissidents promptly published, heh) saying "even if you'd prevail in the election contest, you could not achieve any of your ultimate goals without our cooperation until another vacancy opens up (and it may be another decade until that happens)." Not wrong! Perhaps the upshot here is that Oliver will be elected and will just show up to meetings to annoy the other trustees until one of them dies. It could take a while. Vision II Huh: SoftBank Group Corp.'s bid to raise a second mega fund has met a chilly reception from some of the world's biggest money managers, signaling that a crucial initiative for the firm faces significant hurdles. The Japanese technology giant has made preliminary approaches to some of the world's largest investors as it seeks to raise $100 billion for another fund dedicated to tech startups. But several of these investors plan to make limited or no contributions, people familiar with the matter said. They include Canada Pension Plan Investment Board and Saudi Arabia's Public Investment Fund, whose $45 billion check made it the largest backer of SoftBank's first tech fund, known as the Vision Fund. What if everything is normal again? We spent much of the past few years talking about structural changes in private technology investing, changes that allowed technology companies to become enormous and raise limitless capital without bothering to go public, and then all those enormous private tech companies went public, never mind. And we spent some of the past year talking about the transformative power of the SoftBank Vision Fund, and of the possibility of a Vision Fund every year or two that would be bigger than all other venture capital combined, and about as big as all public capital for tech companies. And, again … never mind? Maybe? Maybe the Vision Fund, like Uber Technologies Inc.'s high-11-figure private-market valuation, was just an artifact of a particular weird time in technology funding, and we won't see its like again. Or maybe we will, I don't know. "A SoftBank spokesman said the idea that big investors have been cool to the second Vision Fund is 'misleading and even inaccurate.'" And part of the reason it's apparently having trouble raising money is that some of its potential investors "already have established programs to invest directly in late-stage startups and aren't interested in paying fees to another party," which is not quite the same as a return to normalcy and the public markets. (Instead of getting a big check from SoftBank and staying private, you can get a big check from Saudi Arabia or the Canadian pension plan and stay private.) Also here's this: SoftBank has tapped Cantor Fitzgerald L.P. to help with the fundraising effort, according to people familiar with the matter. Cantor recently contacted prospective investors seeking commitments of as little as $50 million—or even less if they join feeder funds run by the investment bank, according to an email that was seen by The Wall Street Journal and people familiar with the matter. SoftBank didn't authorize Cantor to seek smaller commitments, and the investment bank scrapped internal plans for feeder funds and commitments of as little as $50 million after the company objected, one of the people said. Feeder funds! One thing that contributed to creating the weird private-tech-unicorn boom of the last few years was feeder funds; after Uber tapped out the obvious sources of big private-company checks (and before SoftBank came along), it raised hundreds of millions of dollars from private clients of Morgan Stanley and Merrill Lynch who invested through vehicles set up by those banks. It is another sort of public/private hybrid: The company gets the experience of being private (because it deals with one investing vehicle), while for investors it is almost like being public (because lots of individuals can invest without having connections or doing due diligence). Feeder funds for SoftBank are a similar idea at another remove: Tech companies can raise money from one private investor (the SoftBank fund), and the SoftBank fund can raise its money from a small handful of private investors, but some of those private investors are conduits for money from lots of random individuals. (Though: rich individuals.) It is almost like having a public stock market, buried somewhere under all the funds. Frat Ponzi! Why not: A 2019 University of Georgia graduate drew the attention of a different SEC after he allegedly ran a $269,000 Ponzi scheme from his fraternity house. Syed Arham Arbab spent his last year at the Southeastern Conference school soliciting investments in his purported hedge fund, the Securities and Exchange Commission's May 31 complaint in the U.S. District court for the Middle District of Georgia said. The complaint is exactly what you'd expect from that summary. The word "GUARANTEED" appears in all caps. Arbab allegedly "sometimes instructed investors to send funds to him via smartphone applications such as Zelle, Venmo or Cash App," and I can't decide if that is entirely a red flag or also a little bit a good idea. (Why shouldn't you be able to Venmo money to your hedge fund manager?) Obviously a strip club makes an appearance: From all of the accounts, he continued to divert investor funds for his own personal use, including bar and liquor store purchases, expenses at an adult entertainment club, and car trips via Uber. In March and April 2019, he paid expenses of over $5,000 for two additional gambling trips to Nevada. The SEC might be cheating a little bit here; they accuse him of (1) depositing investor funds in his personal account and then (2) using his personal account to pay for gambling and adult entertainment. For all I know he was careful only to use his own money for those, but one lesson here is that if you do intermingle investor funds in your personal account, the SEC is going to mention all of your most embarrassing personal expenses when it sues you. By the way, I never read a Ponzi complaint that is like "he diverted investor funds to purchase rare books, fund lepidopterological expeditions, and pay for a child's life-saving surgery." Is that because Ponzi schemers all have the same basic set of hobbies? Is it because the SEC gets to choose which personal expenses to mention, so it plays up the strip-clubs-and Lamborghinis stuff and omits the sympathetic ones? Or is it because the SEC is looking for a certain set of hobbies, so the Ponzi schemers who don't divert funds for Lamborghinis and strip clubs don't get caught? Lunch valuation Well sure: Warren Buffett is an increasingly expensive lunch date. The winning offer for a Buffett charity lunch auction set a record for the annual event at $4.57 million. The winner, who chose to remain anonymous, can bring as many as seven friends to dine with the billionaire investor at Smith & Wollensky steakhouse in New York. Lunch valuation, as we all know by now, is a function of assets under management: The more money an investor controls, the more lunch with him is worth. By that standard, the 2019 Buffett lunch is fairly expensive: At an assets/lunch ratio of about 106,160, the lunch is considerably more expensive than 2018's (143,930—a lower ratio is a more expensive lunch) or 2017's (153,466), and more expensive than lunch with Bill Ackman (about 139,000).[9] But Buffett lunches have actually gotten a lot cheaper, on a relative-value basis, in the last few years, and this year's lunch is nowhere close to a record on that basis. That record seems to belong to 2012, when Berkhire's market capitalization was less than half what it is today, but someone nonetheless paid $3.5 million for the lunch. At that A/L ratio, this year's lunch would be worth about $8.5 million. Things happen The Race to Replace Larry Fink. 'Pharma bro' Martin Shkreli sues Retrophin directors, ex-general counsel for more than $30 million from prison in Pennsylvania. Blackstone Bets on E-Commerce With $18.7 Billion Logistics Deal. Goldman Unit to Buy Manager of Optometry Practices. Ex-Wall Street Lawyer Is Behind Plan to Have Post Office Compete With Banks. Phantom Yields Boost JPMorgan EMBI Indexes. Lawsuit Could Cool a Fast-Growing Way of Giving to Charities. The World's Lowest Interest Rate Could Be Going Even Lower. "Ms. Rubio said she momentarily wondered if he was only proposing because of Twitter, asking, 'Are you serious?'" "Many affluent, single-person households in urban areas … prefer one huge roll of toilet paper over multiple backup rolls they must store somewhere." A Conversation With The Guy Who Got A Massive Jar Jar Binks Tatty On His Back. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] Technically he resigned in February, "in light of certain health issues," and died the following month. He was 84 years old and had been a trustee since 1991. [2] The quotes and information in this paragraph come from the lawsuit that TPL filed against the dissident shareholders. A copy of the complaint is available here. [3] It also *is* an old-timey trust in some key ways, including that it is a "liquidating trust" that can't issue more stock: It can't raise capital, but can only return capital to its shareholders by buying back shares and paying dividends. [4] "The Board of Trustees has determined that no current member of the Board of Trustees serving on the Trust's Audit Committee would meet the requirements of the definition of 'audit committee financial expert' set forth in the applicable rules of the SEC," says the 10-K, which the dissidents make much of. [5] Well, five, if you count the one held on May 22, which is debatable for reasons we'll get to. The four-in-30-years statistic is from the dissident shareholders' presentation and counterclaims. [6] Actually they first nominated a guy named Preston Young, but then replaced him with General Cook. [7] Oliver's victory announcement said: "Out of the 7,756,156 shares outstanding on the record date, a total of 3,660,812 shares voted for the election of Eric Oliver (including shares voted through Broadridge). We have been advised by Broadridge that a total of 1,994,267 shares were voted in favor of the election of General Donald Cook." That's about 47.2% for Oliver and 25.7% for Cook, close to the preliminary summary. [8] I mean, there's a solid legal argument that they didn't: The board postponed the meeting, and they still had the right to revoke their proxies until the rescheduled meeting. And of course if the board is right about disclosure problems, etc., then maybe they would. But practically the fact that they voted for Oliver probably means they wanted to vote for Oliver. [9] I mean. For "assets under management," I just use the market capitalization of Berkshire Hathaway Inc., which is probably not a great measure of AUM but whatever. (For Ackman I use $8 billion.) For lunch price I use the list in that Bloomberg article. Don't … you know … take any of this seriously. | 
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