Gabi Gliksberg, a long-time shareholder of Texas Pacific Land
Corporation (NYSE: TPL), along with ATG Capital Management,
announced today their plan to vote all shares that they own and
advise AGAINST the Board’s recommendations on several proposals for
the upcoming annual meeting, currently scheduled for November 16,
2022.
In the letter to shareholders released today, copied in full
below, Mr. Gliksberg explains to shareholders that, in his view, a
message must be sent to the Board of directors that legitimate
corporate governance must be taken more seriously, and that
furthering the best interests of stockholders – not of executives
and Board members with minimal shareholdings – must be the top
priority. The Board’s proposal to massively increase the number of
authorized shares, giving the Board the ability to potentially
massively dilute shareholders, is contrary to the best interests of
long-term stockholders. In addition, the Board’s reputation of poor
corporate governance is perhaps best underscored by its continued
insistence on maintaining a stockholder agreement that
disenfranchises shareholders, and infringes on their largest
shareholder’s fundamental right to vote independently.
Dear Shareholders of Texas Pacific Land Corporation,
I am a long-time shareholder of Texas Pacific Land Corporation
(NYSE: TPL) (“TPL” or the “Company”). I originally bought shares
when TPL was just a straightforward Trust that for over 100 years
was dedicated to the simple, but exceedingly effective, capital
allocation model of using its cash flows to pay dividends and
repurchase shares. As a result, the stock has performed
phenomenally well. Until a couple of years ago, I was content to
collect my dividends and see my shares rise in value as TPL
continued buying an ever-increasing percentage of its outstanding
stock. In recent years, however, I have become increasingly
concerned about the demonstrable poor condition of TPL’s corporate
governance. I have tried to do something about it, including
attempting to engage management in constructive dialogue,
submitting a successful stockholder proposal at last year’s annual
meeting recommending the Board declassify itself, litigating a
Delaware 220 demand for books and records in order to understand
whether or not misrepresentations were made by directors on
multiple occasions, and also submitting stockholder Proposal 8 on
this year’s ballot. I have seen other stockholders become more
engaged in this effort as well. Five different stockholders
submitted proposals that are on this year’s final proxy. In
addition, Stephen Walker, of Lion Long Term Partners LP, has issued
public letters that articulate a solid case for voting against
Proposal 4.
Stockholder democracy is only effective in practice if
individual stockholders make their voices heard to the Board and
prudently exercise their right to vote on the matters before them.
That is how progress can be made at a company like TPL. Proof of
that is the victory we scored at last year’s annual meeting by
securing passage of my declassification proposal. Passage of the
Company’s Proposal 3 at this year’s annual meeting will now likely
make that declassification a reality. My hope is that with this
bylaw change, we will reduce director entrenchment and increase
Board responsiveness to stockholders. But make no mistake: the
Board did not move toward declassification on its own; it happened
only because the stockholders of this Company made clear what they
wanted.
The fast-approaching 2022 annual meeting will once again put a
number of important governance-related proposals and issues before
shareholders. In the interests of fostering open dialogue and
deliberation among stockholders, I wanted to take a few moments and
explain how I plan to vote on these proposals (and why). My views
on the proposals are connected and flow from some common principles
and observations.
First, the stockholders own this Company, not the Board. Indeed,
it is telling that individual members of senior management and the
Board (other than the Horizon Kinetics and SoftVest designees) own
very small amounts of TPL stock. This can create a misalignment of
interests between the Board and management, on the one hand, and
the stockholder body, on the other. I believe that a healthier
balance of power between stockholders and the Board is needed here,
with specifically greater stockholder representation on the Board.
The best interests of stockholders – not the Board’s
self-perpetuation via entrenchment-benefiting voting mechanisms --
should be the Board’s polestar.
Second, the Board’s actions convey a message of hostility to
stockholder initiatives and a desire to keep power over the
Company’s affairs concentrated in its own hands as much as
possible. This is in some ways an old story. At the time of
conversion from a trust to the present corporate structure,
Co-Trustees David Barry and John Norris appointed the C-Corp’s
Board instead of holding a stockholder vote. They also adopted a
classified board structure, meaning that they themselves would not
stand for re-election until 2023! Worst of all, as a condition of
the conversion, some of the Company’s largest stockholders had to
enter into a Stockholders’ Agreement (the subject of my Proposal 8)
and thereby give up much of their rights and freedoms as
shareholders. Having obtained the concentration of power they
wanted, the Board has consistently tried to preserve the status
quo. The Board opposed my declassification proposal last year –
both before the Securities and Exchange Commission and then at the
annual meeting. Now, they pat themselves on the back for including
the binding version of the proposal of the by-law change at this
year’s meeting. I consider that a little too late. They should have
endorsed my proposal last year if they were serious advocates of
good stewardship. This year, the Board is opposing every single
stockholder proposal being presented at the upcoming meeting. Many
of the Board’s opposition statements in the Schedule 14A share a
common theme: a purported fear of actions that could be
“disruptive” to business operations. That concern rings hollow to
me. In my view, it sounds more like a desire to be insulated from
accountability to the Company’s stockholders, and to constrain as
much as possible stockholders’ ability to serve as a check on the
Board. Accountability can be disruptive, but that certainly does
not make it a bad thing.
Finally, TPL is a great Company. It has a business model that
has generated terrific returns for its stockholders. TPL derives
the majority of its revenues and profits from what I view to be
passive businesses. As royalty volumes have increased – thanks
mostly to the numerous exploration and production companies that
have spent billions of dollars drilling on TPL’s acreage – revenues
and profits have followed. This is a reflection of the assets that
the Company was fortunate to inherit; it is simply not a reflection
of extraordinary skill or entrepreneurial zeal on the part of
management. Based on the recent enormous increases in management
compensation, it appears that the Board does not see it that way.
This business may be boring, but it is lucrative and stockholders
like it. There is no need for someone to try to “fix” it. The Board
should have the attitude of prudent stewards, not of dealmakers or
empire builders.
With the above in mind, I plan to vote against Proposal 4 and to
vote for Proposals 6, 7, 8, 9, and 10.
Proposal 4, in my view, is bad for the stockholders as a whole.
The Board wants to increase the number of authorized TPL common
shares from 7,756,156 to 46,536,936 shares. The Board’s discussion
of this proposal in the Schedule 14A talks about implementing a
stock split designed to lower the trading price and thereby
“attract a broader investor base and increase stock liquidity.” But
that same discussion also emphasizes that, if the Proposal passes,
the Company (meaning management and the Board) would have the
ability to issue additional stock for such purposes as “the sale of
securities to raise capital” and “payment of consideration for
acquisitions.” Later in the discussion, acquisitions come up again:
“the Company desires to have the flexibility to use Common Stock as
consideration for the acquisition of additional assets.” That is a
red flag. TPL’s existing business is apparently too dull for
management, so they and the Board want to try their hands as
dealmakers. Using the Company’s stock as currency in transactions
would dilute the ownership of existing stockholders without having
to be bothered with calling a special meeting to obtain their
approval before issuing new shares. This is consistent with the
themes, discussed above, that the Board seeks insulation from
stockholder accountability while, in its haste to fix a business
model that is not broken, failing to act as prudent stewards of
stockholder value. The proposed stock split, in my opinion, is
presented as a diversion, and the Board has not explained why the
Company needs to attract a broader investor base or why the stock
needs more liquidity. I am voting against Proposal 4.
My Proposal 8 is intended to improve corporate governance at our
Company, as explained more fully in my supporting statement in the
Schedule 14A. Horizon Kinetics and SoftVest are large stockholders
with real economic stakes in TPL’s success. According to the
Schedule 14A, Horizon Kinetics alone owns almost 20% of TPL. Yet,
the Stockholder’s Agreement ties these entities’ hands and prevents
them from acting with the same freedom a typical stockholder has.
For example, as long as these stockholders’ designees are on the
Board, they cannot (a) freely vote their shares (instead they often
must vote lockstep in favor of Board recommendations), (b) nominate
candidates for election to the Board, transact in TPL’s voting
securities above a defined beneficial ownership threshold, inspect
TPL’s books and records, or propose certain changes to TPL’s
business or management, (c) make any statement about TPL and
related persons that “undermines, disparages or otherwise reflects
detrimentally” on such persons, or (d) initiate legal proceedings
against TPL. The effect of these restrictions is to give the Board
the power to control the decisions of an enormously influential
percentage of shares on many significant corporate matters. In my
view, this is a mechanism whose sole purpose is director
entrenchment, and I do not believe that such restrictions are
justified. They merely stack stockholder votes on many key issues
in favor of whatever result a majority of the Board wants, even if
Horizon Kinetics and/or SoftVest actually oppose that result.
Glass Lewis, one of the premier Proxy Advisory firms, opined
that shareholders should vote FOR Proposal 8, and their report
makes the case better than my words can. They state: “in light of
the positive governance changes and other improvements that these
stockholders catalyzed …we believe the most appropriate and
shareholder-friendly approach at this juncture would be to release
the two Horizon and Softvest designees from their obligations under
such agreement. In our view, although these shareholders currently
have representatives on the board, we believe they, like any other
shareholder, should generally be free to vote their shares how they
see fit in line with their own interests and perspectives on the
best direction for the Company”.
Let’s be clear: if not for the actions of Horizon Kinetics and
Softvest in their 2019 proxy fight, there would not be regular
Board elections or even an annual shareholder meeting. They have
skin in the game, they are long-term owners, and they have
repeatedly proven to be more interested in sincere corporate
governance than the former trustees.
Proposal 8 is non-binding, but if it passes, the Board will
become keenly aware of how shareholders feel about this issue, and
will have the option of immediately fixing this deficiency in TPL’s
governance. If the Board ignores stockholders’ expressed wishes,
that lack of responsiveness could alienate the major proxy advisory
firms and have implications for next year’s Board elections.
Further, if Horizon Kinetics and SoftVest vote against Proposal 8
(logically, that would only occur if their obligations in the
Stockholders’ Agreement forced them to), then an intelligent Board
member would net out that voting block to understand where
shareholders really fall on the issue. I am voting yes on Proposal
8, and I encourage your support as well.
I am also voting for Proposals 6, 7, 9 and 10. Many of these
proposals appear to me to be designed to improve the Board’s
responsiveness to stockholders and/or to give stockholders a
greater say on important corporate matters. Although the Board
raises a number of technical objections in its opposition
statements, I suspect the technicalities could be worked out during
the implementation process in a way that satisfies those concerns
should these proposals pass and the Board decide to implement them.
Further, this Board has shown time and again that they have not
earned the benefit of the doubt on governance matters. The apparent
intent behind these proposals is to enhance stockholder democracy,
not hinder it. By voting in favor, I am sending a message to the
Board that the balance of power between the Board and stockholders
needs to be adjusted in the latter’s favor.
I look forward to seeing many of you in Dallas this week.
Gabi Gliksberg
Managing Partner
ATG Capital Management LLC
The Company filed a definitive proxy statement on October 7,
2022, which is available at
https://www.sec.gov/Archives/edgar/data/1811074/000110465922106944/tm2227513d1_def14a.htm
and additional filings are available on the SEC’s website at
http://www.sec.gov.
ATG Capital Management LLC
ATG Capital Management LLC (“ATG”) is a privately-held
investment firm, founded by Gabi Gliksberg, that manages investment
vehicles for a small number of investors. ATG invests primarily in
public equity markets, utilizing alternative strategies and
shareholder activism, in pursuit of providing superior, long term
investment returns. Visit atgfund.com for more information.
Contact:
Gabi Gliksberg
ATG Capital Management, LLC
tpl@atgfund.com
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