CalPERS voted to oppose the proposed merger between PacifiCare Health Systems Inc. and UnitedHealth Group unless a separate vote is taken on a $345 million compensation package for PacifiCare executives. A shareholder vote is scheduled for Nov. 17.
The unanimous vote by board members of the $193.3 billion California Public Employees' Retirement System, Sacramento, was taken yesterday in light of new information that PacifiCare management had begun discussions about a merger going back to December 2004. The merger was not announced until July 6. CalPERS board members argued shareholders should have been informed about the merger talks before they approved a new stock compensation plan on May 19. The execution compensation package included accelerating vesting and other benefits for management if a change in control took place.
Robert F. Carlson, CalPERS vice president, said PacifiCorp's action represented a conflict of interest and a breach of duty to its shareholders. The pay package is "the biggest case before us on executive compensation," a top CalPERS corporate governance issue, he said.
The CalPERS board also threatened legal action against the companies and would refer the issue to the California attorney general's office for possible criminal violations.
Cheryl Randolph, a PacifiCorp spokeswoman, said the company had fully disclosed terms of the executive compensation plan, and has had numerous discussions with CalPERS and California State Treasurer Phil Angelides on the issue. She said the company expects the majority of votes will favor the merger.
Separately, the board gave the go-ahead for a preapproved list of managers to run up to $500 million in environmentally sensitive public equity portfolios. For domestic equities, CalPERS selected AXA Rosenberg, New Amsterdam Partners, and Piper Jaffray, in conjunction with INTECH. Brandywine was picked to run international stocks, while State Street Global Advisors was selected to run both domestic and international stock portfolios.
The board also renewed the contracts of its five international fixed-income managers for another year. The managers, who collectively run $5.6 billion, are: Baring Asset Management, Julius Baer Investments, Bridgewater Associates, Rogge Global Partners and Western Asset Management.
In addition, the board approved an exemption from competitive bidding for the hedge-fund administration contract with International Fund Services as administrator for CalPERS' absolute-return program.
The board also approved developing an RFP for domestic and international equity strategies that would be permitted to go short with up to 35% of each portfolio. The portfolios would be allowed to have a tracking error of 6% or less, and would have a beta close to 1.0.