February 28, 2021

Fair Game: A Shareholder Challenges an Occidental Petroleum Move

Or it was until mid-February, when a bit of boardroom weirdness erupted at Occidental Petroleum, the oil and gas exploration and production company based in Los Angeles and one of Mr. Romick’s holdings.

On Feb. 14, out of the blue, Occidental issued a terse, two-paragraph news release. In it, the company announced the creation of a search committee to identify possible successors for Stephen I. Chazen, the C.E.O. It was the first that shareholders had heard about replacing Mr. Chazen, and Mr. Romick said he felt that there was more to the story than Occidental stated.

Then a Wall Street Journal article pointed to boardroom intrigue at the company and suggested Mr. Chazen was being pushed out. Mr. Romick took action.

“I don’t disagree with the idea that there has to be better succession planning at the company,” Mr. Romick, 49, said last week, “but it was putting the wrong guy out to pasture.” The right guy, he contended, would have been Ray R. Irani, the executive chairman of Occidental’s board and its chief executive before Mr. Chazen for 21 years.

Dr. Irani, 78, has ignited controversy at Occidental before. When he was C.E.O., his rich compensation was criticized, and three years ago, 53 percent of Occidental shares voted at the annual meeting rejected the company’s pay policies. A group of shareholders also threatened to mount a proxy fight to oust four independent directors at the company. Afterward, in 2011, Dr. Irani stepped down as C.E.O., and Mr. Chazen took over.

The current plan is for Dr. Irani to retire altogether from the company in 2014. But when the board released its surprise succession statement regarding Mr. Chazen, some investors became concerned that removing him would allow Dr. Irani to postpone his exit. Trying to tamp down this speculation, the company in early April denied any boardroom strife and said Dr. Irani would retire next year, on schedule.

“This is not the time to ask Dr. Irani to step down,” said Dale Petroskey, a spokesman for Occidental. “He can help to ensure continuity and good execution during this period of transition.” He declined to make any board members available for comment.

Nevertheless, the boardroom imbroglio has drawn investor scrutiny to Occidental’s directors just ahead of its annual meeting on May 3 in Santa Monica, Calif. Under its bylaws, any board member who does not receive support from a majority of voted shares has to resign.

Mr. Romick is among the investors who say it’s about time that Occidental’s board is scrutinized. Its directors are among the most highly paid in corporate America: the nine current directors who served for all of 2012 received an average of $640,000 in annual compensation, most of it in stock.

Aziz D. Syriani, 71, is the lead independent director. The C.E.O. of the Olayan Group, a global trading, services and investment organization, he received stock and cash worth $879,000 last year as an Occidental director.

This year’s proxy statement says the board as a whole met five times in 2012. (The audit committee, which Mr. Syriani heads, met eight times.)

“There is no justification for what they earn,” Mr. Romick said. Moreover, the rich pay may induce directors to put managements’ interests ahead of shareholders’, he said.

Mr. Petroskey of Occidental disagrees. “Directors’ compensation is primarily based on an annual stock grant,” he said. “While the directors have not voted themselves an increase in the amount of shares awarded in the annual grant in more than a decade, the value of the grant has increased in recent years due to the very strong performance of Oxy stock.”

Then there is the lengthy tenure of Occidental’s directors — an average of 12 years. Mr. Syriani has served since 1983, which raises questions among some investors about whether his allegiances lie more with the company than with shareholders. As an April 7 research report by Deutsche Bank noted, under governance guidelines in Britain, such longevity would deem the Occidental board “not independent.”

Mr. Petroskey noted that the New York Stock Exchange, where the company’s shares trade, has no such measure of independence. “There are advantages to having a long-serving director with deep knowledge of the company and its operations,” he said. “The board is united under Mr. Syriani’s leadership on continuing to make the difficult but necessary decisions to move this company toward a strong future.”

Article source: http://www.nytimes.com/2013/04/21/business/a-shareholder-challenges-an-occidental-petroleum-move.html?partner=rss&emc=rss

High & Low Finance: Sorting Out a Chinese Puzzle in Auditing

To the Canadian affiliate of Ernst Young, the answer to both questions appears to be no.

How, asked one Ernst staff member involved in the audit in an e-mail to a colleague, “do we know that the trees” the auditors were being shown “are actually trees owned by the company? E.g. could they show us trees anywhere and we would not know the difference?” The answer was yes: “I believe they could show us trees anywhere and we would not know the difference,” replied the colleague.

That did not lead Ernst to change its procedures. Nor did it bother to look at documents that it knew were crucial to answering the questions about the Sino-Forest Corporation, which was based in Canada but had its operations in China.

Until the summer of 2011, Sino-Forest appeared to be a real success story, backed by underwriters like Credit Suisse and Toronto Dominion and with shares worth billions of dollars. Its bonds were rated as just under investment grade by Standard Poor’s and Moody’s. Then a short-selling operation known as Muddy Waters said it thought the assets were greatly exaggerated. Sino-Forest appointed a group of its independent directors to investigate, and in due course they concluded they could not even be sure just what trees the company claimed to own, let alone whether it owned them.

This week brought the Sino-Forest case close to a conclusion. Ernst agreed to settle a shareholders’ suit for 117 million Canadian dollars, or about $116 million, while denying it was liable. The company agreed to come out of bankruptcy with its assets, whatever they might be, owned by the creditors. The company had tried to find buyers, and a number looked at the documents, but nobody bid. There still seems to be no certainty about how much, if any, timber the company owns.

While Ernst settled the shareholder suit, it said it would fight new charges by the Ontario Securities Commission that the audit firm failed to follow proper audit procedures. It was the commission suit, filed this week, that disclosed the e-mails exchanged by the auditors.

“We are confident that Ernst Young Canada’s work was conducted in accordance with Generally Accepted Auditing Standards (GAAS) and met all professional standards,” the firm said in a statement. “The evidence we will present to the O.S.C. will show that Ernst Young Canada did extensive audit work to verify ownership and existence of Sino-Forest’s timber assets.”

However extensive the work, the audit failed to uncover the essential truth: the assets were fake.

Frauds, and audit failures, can happen in many countries. But China is a special case because the authorities there seem to be completely uninterested in getting to the bottom of scandals whose victims are American or Canadian investors. Even regulators in Hong Kong have voiced frustration with their mainland colleagues.

Last week China sent another delegation to the United States to talk about these issues with American regulators, and a Chinese official was quoted by The Financial Times as telling a Hong Kong audience that audit working papers should be shared with other regulators — something the Chinese supposedly agreed to a decade ago but had never actually done. “I think we’ll shortly be able to work out a way to deliver those papers,” he said.

The American regulators have heard those stories before. In July, the chairman of the China Securities Regulatory Commission, Guo Shuqing, told Mary L. Schapiro, then the chairwoman of the United States Securities and Exchange Commission, that he thought an agreement could be reached. It turned out that the Chinese insisted they would provide documents only if the S.E.C. promised not to use them in an enforcement proceeding without Chinese permission.

The week the S.E.C. filed court papers, in connection with its pending case against a Chinese affiliate of Deloitte, laying out case after case in which American regulators asked for assistance through obtaining audit work papers or even something as simple as verifying that a Chinese company existed. Repeatedly, the Chinese said something could be worked out, but somehow nothing ever was.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2012/12/07/business/sorting-out-a-chinese-puzzle-in-auditing.html?partner=rss&emc=rss

DealBook: Express Scripts to Buy Medco for $29 Billion

George Paz, the chief executive of Express Scripts.George Paz, the chief executive of Express Scripts.

6:36 a.m. | Updated

Express Scripts said on Thursday that it would buy smaller rival Medco Health Solutions for $29.1 billion, becoming the biggest pharmacy benefits manager in the country in one of the largest deals of the year.

Under the terms of the deal, Express Scripts will pay $28.80 in cash and .81 of its own shares for each Medco share. As of Thursday morning, that is valued at $71.36, a 28 percent premium above Medco’s Wednesday closing price.

After the deal closes, Express Scripts will own 59 percent of the combined company. George Paz, Express Scripts’ chairman and chief executive, will continue to hold those titles. The new company’s board will be expanded to include two current Medco independent directors.

The merger is only the latest for the health care industry, which has hosted significant consolidation amid the coming overhaul in insurance.

Deutsche Bank analysts called the deal a “highly unexpected marriage of two fierce competitors” that highlighted how much the industry was changing. The analysts, led by Ross Muken, wrote that the transaction “should also help to quell some fears over the sustainability of long-term profit growth.”

Companies like Express Scripts and Medco help employers, health plans, labor unions and government agencies fulfill benefits for prescription drugs, reduce the costs of treatments by negotiating discounts from drug makers, while often running mail-order pharmacies as well.

“The cost and quality of health care is a great concern to all Americans,” said George Paz, head of Express Scripts. “This is the right deal at the right time for the right reasons.”

In Medco, Express Scripts finally has its big drug benefits merger. The company unsuccessfully battled CVS for CareMark Rx and definitively lost four years ago, stymied in part because of antitrust concerns. This time around, Express Scripts stressed that despite buying Medco, it would still face competition from a variety of drug benefits managers.

“On the regulatory front, we expect a drawn out process,” Steven Halper, an analyst at Stifel Nicolaus, wrote in the research note on Thursday. “Five years ago, Express was very confident that it would get regulatory approval for its attempted purchase of Caremark.”

Mr. Muken, of Deutsche Bank, agreed: “Under the Obama administration, the F.T.C. has been significantly more strict” in the deals is approves and rejects, he said in an interview.

“There’s going to be a pretty heavy lobby from the pharma community” against the deal, he said, because Express and Medco were creating “an entity with a lot of power in the supply chain.”

Still, the Deutsche analysts are predicting that the acquisition will complete late in the first half of next year.

Medco, one of the largest pharmacy benefits manager in the country, said in May that it had lost the 2012 contract with the Federal Employees Health Benefits Program to CVS Caremark, a contract that accounted for about $3 billion in yearly revenue. Last month it lost the account of the California Public Employees’ Retirement System to CVS as well. Medco’s stock is down 8.96 percent for the year.

Express Scripts said that it expects to reap about $1 billion of cost savings once the deal is completed, and that it will begin adding to its earnings per share in the first full year after closing.

The merger is expected to close in the first half of next year, pending regulatory and shareholder approval.

Express Scripts was advised by Credit Suisse, Citigroup and the law firm Skadden, Arps, Slate, Meagher Flom. Medco was advised by JPMorgan Chase, Lazard and the law firms Sullivan Cromwell and Dechert.

Article source: http://feeds.nytimes.com/click.phdo?i=8c69de91ba80e5ddba436e5ceb5d8f19