Update: MeVC Draper Fisher Concedes Proxy Fight

Just a week and a half after the MeVC Draper Fisher Jurvetson Fund I Inc. proxy vote was postponed, its investment managers have conceded their attempts to muster more support in a revote. They faced an ongoing proxy fight with closed-end mutual fund MeVC’s largest shareholder, Millennium Partners.

Millennium, a New York-based hedge fund, opposed two proposals to renew the investment advisory agreement between MeVC and MeVC Advisers. The hedge fund cited clauses in the proposals which removed shareholder approval from future investment advisory agreements.

Following the original March 27 meeting, MeVC’s board gained an extension until April 25 to rally enough votes to pass the proposals, but now, a contingency interim advisory agreement will be effective for 150 days, during which time the board must negotiate an acceptable advisory agreement with shareholders.

For more on this story, check out the 4/15 print edition of Private Equity Week. For recent coverage of the MeVC vs. Millennium battle, keep reading.

Round I: Millennium Lands A Jab On MeVC

April 4, 2002

The dust has settled on round one of New York hedge fund Millennium Partners vs. the management team of Silicon Valley closed-end mutual fund MeVC Draper Fisher Jurvetson Fund I Inc. (MeVC). At the moment, Millennium has a slight advantage.

Claiming dissatisfaction with venture-capital-oriented MeVC’s performance and structure, Millennium filed a breach of fiduciary duty suit in February and initiated a proxy fight in anticipation of last Wednesday’s annual shareholders’ meeting.

After the shareholders’ meeting, the judge sounded the bell with both parties still standing. Due to intervention by the New York Stock Exchange (NYSE), MeVC’s board did not generate enough votes to pass two proposed advisory agreements that are controversial because they won’t allow for shareholder review in the future. Shareholders will vote again on April 25.

Under the NYSE ruling, which came hours before the event, 7.2 million of the 16.5 million shares were changed to non-routine from routine and discarded. The board needs 50% of all shares or 67% of the voted shares to approve the proposals. And qualifying votes must be cast by individual shareholders. That makes them different from the non-routine shares that were cast at brokers’ discretion on behalf of individual shareholders.

MeVC’s board did not disclose the results of the voting. Theoretically, the board must have collected less than two-thirds (or roughly 6 million) favorable votes needed to pass the proposals under that scenario.

Millennium Partners Managing Director Robert Knapp estimates that 4 million shares were voted against the proposal, but that number could not be confirmed.

“If we’re right in our analysis, then they’ve got a pretty high hurdle,” says Knapp. If 4 million shares vote against the proposal at the April 25 meeting, then MeVC’s board would need at least 8 million favorable votes to pass its proposals. “This is one step toward victory,” he says.

However, sources close to MeVC also claim a slim, undisclosed margin of victory.

MeVC Chairman John Grillos says, “We left the meeting pretty happy, but also committed to speak with our shareholders.”

Round Two

MeVC has to either attract the necessary votes or deal with Knapp, their lead antagonist. As reported last week in Private Equity Week (see PEW, 3/25, p. 1), Knapp has said he would favor a complete liquidation of the fund’s portfolio, a change in management or a restructuring of the investment agreement.

It’s anybody’s guess when and if those negotiations will take place.

“My read on it is they’re not really going to ask to sit down before the next adjournment,” Knapp says.

Even though Grillos says he looks forward to meeting with shareholders, Knapp may not be high on his list.

“This fund was put together with the individual in mind as a core buyer, and he doesn’t qualify as a core buyer,” Grillos says, adding that 90% of MeVC’s shareholders are individuals.

Knapp has been successful in similar conflicts with vehicles in the UK. Alan Ray, a London-based analyst covering UK investment trusts for Credit Lyonnaise, says these conflicts are more common in the more-mature UK market, citing two resolved cases already this year.

“The way they tend to work in 99 times out of 100: It tends to be the knowledge of the threat that [the shareholders] will take the next steps that will get the board to the [negotiating] table,” Ray says.

“Certainly, if I was advising a board in the UK and one of the shareholders was unhappy, I would advise the board to talk to them,” says Ray, who commented based on his experience with UK investment trusts.

Knapp complains that MeVC’s board has ignored him before. But after this latest bout, they aren’t likely forget him anytime soon.

Contact Charles Fellers at: Charles.Fellers@tfn.com