Pension Fund Urges Firms to Spurn Anti-Takeover Law

In a new sign of the increasing militancy of large pension funds, the California Public Employees Retirement System on Tuesday asked 22 of the largest companies incorporated in Pennsylvania to withdraw from that state’s far-reaching anti-takeover law.

CalPERS, the nation’s largest and most influential public pension fund, with about $57 billion in assets, said the recently passed law placed radical restrictions on the right of shareholders to change management.

The law essentially makes it harder for hostile parties to buy a company incorporated in the state and for disgruntled stockholders to change management through proxy fights aimed at ousting the board and other tactics.

The pension fund sent a letter dated May 11 to the companies. It said it has not yet received any direct responses.

Large pension funds, which can own million of shares of publicly held companies, are increasingly taking a more active role in corporate affairs in order to ensure that their investments remain profitable.

“There’s a growing trend to militancy” among the once-passive trustees of large pension funds, said Richard Koppes, general counsel to CalPERS.

CalPERS may completely divest its stock holdings in Pennsylvania companies, which total $500 million, and the fund has already joined a lawsuit to overturn the controversial legislation, he said.

The Pennsylvania anti-takeover law has galvanized pension funds into protecting their own interests more aggressively, Koppes said. CalPERS is currently weighing plans to lobby for change in the law, and may freeze any further investments in the state.

“We’re going to urge more federal intervention” against state anti-takeover laws, such as the law passed by Pennsylvania last month, Koppes told Reuters.

The Pennsylvania legislation, which is considered the nation’s toughest anti-takeover measure, was signed into law on April 27. It allows companies 90 days to decide whether they want to be included under its provisions.

“The Pennsylvania law is a real problem for pension funds in general, both public and private,” Koppes said.

The bill was supported by many major Pennsylvania corporations and labor, but it was opposed by Canada’s Belzberg family, whose takeover overtures to a company in the state prompted the bill.

Already, PNC Financial Corp., the state’s biggest bank holding company, has recommended that it not be covered by the bill. But PPG Industries Inc., a large building materials company, said it wanted to be included under the bill’s provisions.

CalPERS said the anti-takeover legislation impairs the ability of U.S. companies to compete in a global market while diminishing the rights of stockholders.

Critics of the new law have said that it would serve to protect entrenched management’s interests, and make U.S. companies less competitive by making it hard to oust incompetent managers.