The Pioneer Group of Boston has issued a letter to its corporate shareholders to update them on the firm's efforts to sell the company. The April 18 letter, signed by 73-year-old Pioneer president John F. Cogan, Jr., alerts shareholders that the Pioneer "board is very encouraged by the expressions of interest received to date," and attacks Lens Investment Management of Portland, Maine, a beneficial owner of 4.1 percent of Pioneer's stock.
Earlier this year, Lens called for Pioneer to be sold to the highest bidder at auction and began waging a proxy contest to replace the current board's incumbent nominees with a slate of five new board nominees with ties to Lens. Lens estimates that Pioneer, which has suffered significant losses in all but its U.S. investment management unit, could command as much as $42 per share in a sale of the firm. On April 18, the company's shares were trading at under $24 per share.
In February, under pressure from large institutional investors, Pioneer hired two New York investment banking firms, Merrill Lynch and Salomon Smith Barney, and announced plans to seek "strategic alternatives," including the possible sale of the company.
In his April 18 letter, Cogan attacked Lens for pursuing the disruptive proxy contest.
"Lens has disrupted the process [of exploring transactions] and diverted the board's attention from the task at hand by making burdensome demands for documents and threatening baseless lawsuits in furtherance of its dissident campaign," said Cogan in the letter.
The Cogan letter apparently comes in response to a letter Lens sent to Pioneer's board of directors just days after Pioneer filed its most recent proxy statement, on April 12, providing details of an executive retention program. The proposed plan would provide a "golden parachute" to each of Pioneer's top executives should there be a change in control of the company and the executives' employment is subsequently terminated within 24 months.
Richard Bennett, director of governance at Lens, confirmed that his firm had sent a letter to Pioneer's board of directors requesting further information regarding the golden parachute proposal.
Under the proposed executives' packages, Pioneer would pay a total of $13.8 million in cash to six of the firm's executive officers if a change in control of the company were to take place. In addition, all of the outstanding options on Pioneer's stock which had previously been granted to those executives, would become immediately exercisable. All but one of the named individuals would be allowed to remain a participant in the firm's benefit plans for 24 months, and all would be entitled to outplacement services.
Towers Perrin, a compensation consulting firm in Valhalla, N.Y., was retained to help the Pioneer board's three-member compensation committee develop the agreements.
The officers who would be granted the golden parachutes include Alan Strassman, who has been vice chairman of Pioneer since 1998, and executive vice presidents Stephen Kasnet, Alicja Malecka, William Smith and David Tripple. Tripple has also been president of Pioneer Investment Management since 1986. Also included is Dr. Jaskaran Teja who has been senior vice president of Pioneer International since 1992.
Cogan, who has been president, chief executive officer and chairman of the board of Pioneer Group since 1962, had requested exemption from the proposed golden parachute arrangement and had voluntarily surrendered an option to purchase 100,000 shares of Pioneer common stock he was given in December 1998, according to the proxy statement. Cogan has been chairman of Pioneer Investment Management since 1993 and was the fund management unit's president from 1962 through 1993. Cogan is also a partner of Hale & Dorr in Boston, the law firm that serves as counsel to both Pioneer Group and the Pioneer Family of Mutual Funds. According to the proxy, Pioneer paid an unrelated $1 million to Hale & Dorr for legal and related expenses in 1999.
The board's compensation committee chose to grant a special separation package to Cogan in light of his anticipated participation in any transaction involving Pioneer, according to the proxy. That package includes a $1 million cash payment to Cogan upon the "consummation of a significant transaction affecting the company" and a guarantee that Cogan could continue in the firm's employee benefit plans for two-years.
But the packages proposed for all seven Pioneer officers angered Lens executives.
"We think it (the separation arrangement) is outrageous in both substance and timing," said Bennett of Lens in an interview. "Suddenly, these things are voted on as the company is shopping itself around. The suggestion is that we should reward these people on the way out of the door. But it rewards (these) people for very poor results and dismal performance." But, he said the existence of the golden parachutes could signal that Pioneer has finally committed itself to a sale.
Fund industry executives and analysts believe a sale of the investment management firm is imminent, and could even take place before the shareholder meeting scheduled for May 16.
"Retention packages such as the one outlined in the proxy are common practice in many industries," said Anne Patenaude, vice president and spokesperson at Pioneer in a telephone interview. "Pioneer is also interested in increasing shareholder value for all of our shareholders and our board has taken steps to do that."
"Our general philosophy is that we don't mind golden parachutes but we don't like platinum ones," said Mario Gabelli, chairman and CEO of Gabelli Asset Management in Rye, N.Y., adviser to the Gabelli Funds which collectively own more than three million shares of Pioneer or approximately 11.2 percent of the firm.
Gabelli said any agreement which provides for the termination of the firm's executives may not make much difference to the company's bottom line once the firm is sold. He said he had not yet seen Pioneer' proxy proposals.
"We're looking at the pimple on the back of an elephant instead of the elephant," he said. "They (Pioneer) pulled up lame a couple of years ago and haven't done well managing the company." What is important is that a sale is likely, he said.
Southeastern Asset Management of Memphis, Tenn., which according to the Pioneer proxy, owns almost 18.3 percent of the company's shares, declined to comment.