Marrone Bio Settles Class Action: Next?

Marrone Bio Settles Class Action

Marrone Bio Settles Class Action: Announcement

 Marrone Bio settles class action; time to move on. Marrone Bio Innovations, Inc. (the “Company”) (NASDAQ:MBII, $MBII), a leading provider of bio-based pest management and plant health products for the agriculture, turf and ornamental and water treatment markets, recently announced the Company and other defendants, including certain of the Company’s current and former officers and directors, have reached an agreement to settle the private securities class action litigation consolidated in the U.S. District Court for the Eastern District of California on February 13, 2015 as Special Situations Fund III QP, L.P. et al v. Marrone Bio Innovations, Inc. et al, Case No 2:14-cv-02571-MCE-KJN.

The agreement is subject to review and approval by the court after notice and an opportunity to object are provided to the plaintiff class. The settlement agreement contains no admission or concession of wrongdoing or liability by the Company or any other defendant and includes a full release of claims. The agreement provides for a settlement payment to the class of $12,000,000, which will be paid by insurance carriers. Accordingly, the settlement of these lawsuits will have no adverse impact on the Company’s financial position or operations.

Marrone Bio Settles Class Action: About Marrone Bio Innovations 

Solutions. Marrone Bio Innovations, Inc. (MBII) has four products for agriculture on the market (Regalia, Grandevo(R), Venerate(R) and Majestene(R)), a proprietary discovery process, a rapid development platform, and a robust pipeline of pest management and plant health product candidates. They are dedicated to pioneering better biopesticides that support a better tomorrow for users around the globe. Press release on Marrone Bio Settles Class Action.  

Marrone Bio Settles Class Action: CorpGov.net Portfolio Fit

Marrone Bio is one of the top ten holdings in my portfolio. I have lost more from my investment in $MBII than in any other firm in my current portfolio. Yet, I continue to eagerly buy more when the price is under $0.75 per share. It is nice to see the founder is also accumulating, according to this Form 4. More importantly, it is good to see lenders waived a clause that required Marrone Bio to maintain at least $15 million in cash. Also great to see them entering new deals. 

In theory, the company is almost a perfect fit for me and my values. It is located in Davis, California, about 30 miles from my office, so I more can easily monitor them than most of my investments. I also love the products.

Marrone Bio Innovations, Inc. (NASDAQ:MBII) aims to lead the movement to a more sustainable world through the discovery, development and promotion of biological products for pest management and plant health. Our effective and environmentally responsible solutions help customers operate more sustainably while controlling pests, improving plant health, and increasing crop yields.

Most of their customers practice conventional agriculture but an increasing proportion are transitioning to organic. Their products can be used by all three groups plus those exporting to the EU and some Asian countries, where pesticide residues must be considerably below what is acceptable in the United States. I spent most of my career in environmental protection. It feels great to invest in my values. Although I’ve suffered losses, the company has great potential. A start at this point would just be reaching the price point and capitalization levels needed to avoid delisting.  Marrone Bio Innovations, Inc. (MBII) Updated Analyst Coverage and more recent coverage.

Here’s a presentation by Pamela Marrone, CEO and Founder at AgriVest, the Israeli agritech investment event sponsored by The Trendlines Group, Israel’s Ministry of Economy, and GreenSoil Investments.  “From Start-up to IPO: Lessons Learned by a Serial Entrepreneur” at AgriVest 2015, April 27, 2015.

Marrone Bio Settles Class Action: Next – Possible Corporate Governance Reforms

With the class action settlement and other positive developments, Marrone Bio should be able to move forward. They had to cut way back on staffing in oder to survive their accounting scandal. Lessons were learned and are now a much leaner company on the path to full recovery and accelerating growth. However, I’m still concerned about their corporate governance practices, which are difficult to fully assess from outside the company. How did their compensation committee allow an incentive structure that rewarded booking sales before they were really final? Why didn’t the audit committee see the accounting problems earlier? 

As a very small company with a valuable pipeline of current and potential products, I understand the  desire to ensure they aren’t subject to undervalued takeover. They have several defenses, including:

• Classified board with staggered terms.
• Plurality vote standard to elect directors with no resignation policy.
• Directors may only be removed for cause and only by the vote of 66.67% of the shares entitled to vote.
• No action can be taken without a meeting by written consent.
• Shareholders cannot call special meetings.
• Supermajority vote requirement (66.67%) to amend certain charter provisions. Supermajority vote requirement (66.67% or 80%) to amend all bylaw provisions.
• No proxy access provisions.

Declassifying the board requires an 80% vote, an extremely high bar, especially with insiders holding 20% of the company. Other bylaw changes require 66.67%. I wish those high thresholds had a built-in expiration point of maybe five years or so. I am most tempted to file a proxy access proposal, allowing shareowners more influence in nominating and electing directors but still allowing the founder to not be threatened by an undesirable takeover attempt. I’d feel more confident if top shareowners included SRI type funds or even public pension funds but both are missing. Additionally, I see the largest institutional shareholder, Waddell & Reed, has voted against proxy access 97% of the time. I trust their position is shifting with the times.

From the most recent proxy, issued before Marrone Bio settles class action:

Our stockholders are entitled to present proposals for action at a forthcoming meeting if they comply with the requirements of our bylaws and the rules established by the SEC. Proposals of stockholders intended to be presented at next year’s annual meeting of stockholders and included in our proxy materials for that meeting must be submitted in writing and received by us, Attention: Corporate Secretary, at 1540 Drew Ave., Davis, California 95618, not less than 45 days or more than 75 days prior to the first anniversary of the date on which we first mailed our proxy materials for the annual meeting (i.e., not earlier than February 10, 2017 and not later than March 11, 2017), after which the notice is untimely.