The Minnesota State Board of Investment, the entity that manages assets for the state’s retirement systems, decided on Friday that it will not vote in favor of Medtronic’s acquisition Covidien.
Medtronic is Minnesota’s largest medical technology company, and Covidien is a medical supplier based in Dublin.
The retirement board has a say in the decision because it is a shareholder in both companies.
More from the Star-Tribune:
A four-member subcommittee of the state Board of Investment decided Friday morning not to vote in favor of Medtronic’s acquisition of Dublin-based healthcare supplier Covidien during shareholder voting next week. Critics on the committee said they were concerned that the stock-and-cash transaction would help Fridley-based Medtronic avoid taxes while providing “preferential” tax perks to executives.
Medtronic and Covidien shareholders will vote Tuesday on whether to approve the deal. The state retirement board can participate because it controls 117,130 Medtronic shares and 427,825 Covidien shares through its various retirement and trust funds. Board rules say its staff needs committee approval before casting proxy votes in controversial cases.
The Medtronic deal has proved controversial because it is structured as a corporate inversion that will move the combined company’s legal address being in Ireland, while leaving “operational” headquarters in Minnesota. Such deals have been criticized for helping multinational companies avoid domestic taxes.
Medtronic management is also urging shareholders to support the company paying an estimated $73 million to cover special excise taxes on executive stock options that will come due as part of the inversion. Board members said there was clear precedent to vote against deals that contain an executive “golden parachute.”
The Minnesota State Board of Investment manages $78.2 billion in assets.
Photo by Keith Ivey via Flickr CC License
This video features a discussion with Anne Simpson, CalPERS Senior Portfolio Manager and Director of Global Governance, about how the pension fund uses its influence as a major shareholder to change corporate governance and push for better social and environmental practices within corporations.
This year, the U.S. Congress addressed the insolvency of the Highway Trust Fund by allowing companies to engage in a practice called “pension smoothing”.
The plan addresses the Fund’s insolvency but comes with future costs.
On Wednesday, the Washington Post named pension smoothing one of the 11 “worst policy ideas of 2014”.
From the Post:
The Highway Trust Fund, which helps states pay for vital infrastructure, has been running out of money for years (here’s a quick explainer on why). This summer, Congress needed to find about $10 billion dollars to temporarily prop up the fund (in the absence of a long-term solution, that is). So what did Congress do to generate that money? Raise the gas tax? Create a better road user fee? In a rare act of bipartisanship, Congress found more than half that money instead through “pension smoothing,” which is widely derided by everyone outside of Congress as a mere budget gimmick.
In effect, Congress allowed corporations to underfund their future pensions to create the semblance of more tax revenue today. A succinct NPR explainer of the trick:
It allows employers that offer traditional pensions to set aside less money for future retirees. That makes the companies appear more profitable in the short run so they — or their employees — pay more money to the government in taxes.
Read more Pension360 coverage and analysis of pension smoothing here.
In this discussion, CalSTRS Chief Investment Officer Chris Ailman talks about why he thinks corporations need to have separate CEO and chairman roles – and how CalSTRS is pushing companies to divide those roles.
A recent ruling by the Delaware Supreme Court lets corporations shift their legal tab to investors.
Now, public pension and trade groups are speaking out against the ruling. Two trade groups representing public pension funds have contacted Delaware lawmakers over the last two weeks to lambast the ruling.
From Pensions & Investments:
A letter sent Wednesday to Delaware Gov. Jack Markell by the National Conference on Public Employee Retirement Systems and eight unions representing public- and private-sector workers warns that the decision “eviscerates investor rights” beyond the state’s borders.
The letter joins an earlier call Nov. 24 by the Council of Institutional Investors for Delaware lawmakers to restore investors’ legal rights that are now threatened by the decision in ATP Tour Inc. et al. vs. Deutscher Tennis Bund. While the court allowed a private corporation to amend its bylaws to make litigants personally liable for legal expenses, public company boards of directors have embraced the May 8 ruling. More than three dozen companies have unilaterally adopted similar or even more restrictive fee-shifting provisions, said CII, whose members represent $2 trillion in assets, including the $187.1 billion California State Teachers’ Retirement System, West Sacramento; New York City Police Pension Fund, New York City Fire Department Pension Fund and other funds in the $160 billion New York City Retirement Systems; and North Carolina Department of State Treasurer’s Office, which oversees the $88.4 billion North Carolina Retirement Systems, Raleigh.
Both groups are calling for the governor to take immediate action, including legislation to restrict or overturn the court’s decision and curb the adoption of fee-shifting bylaws by companies, many of which are incorporated in Delaware. Calls to the governor’s office were not returned by press time.
“Pension plans are among the largest and most active institutional investors. Approximately 70% of the typical public pension plan’s funding comes from investment returns. As shareholders, pension plans must ensure the integrity of their investments. But as fiduciaries, pension plans cannot expose their capital — and their beneficiaries — to unreasonable financial risk,” said the letter from NCPERS, which represents $3 trillion in pension assets. “No reasonable investor … would be willing to risk facing this type of uncontrollable financial exposure.”
More on the case – ATP Tour Inc. et al. vs. Deutscher Tennis Bund – can be read here.
Photo by Joe Gratz via Flickr CC License