A bitterly divided board, Birkin bag bonuses and a fight for control

Eileen Drake previously owned two mobile phones — one for work and one for personal use — but the former US Army pilot was recently forced to purchase a third device to wage an unusual boardroom battle.

The longtime chief executive of Aerojet Rocketdyne, Drake is using her new phone to persuade shareholders to keep her in place, ahead of a vote in late June.

Incumbent bumps usually feature on the official company slate of nominees for a board election and their administrative expenses are paid by the company. No one objects when they use the trappings of their office, including work-issued mobile phones, to lobby shareholders.

However, in one of the most unusual corporate battles in recent memory, there will be no Aerojet slate at a June 30 meeting as two rival factions, each with four members of the eight-person board, square off for control of the company.

The strange state of affairs stems from a dispute between Aerojet’s chief executive and its executive chair, over a failed sale of the company to Lockheed Martin. The acrimonious spat has even seen Drake allege that her adversary offered her expensive handbags as an inducement to alter the terms of the deal.

Drake is still running operations at Aerojet, the last US independent maker of missile propulsion systems. Yet she must refrain from using company resources in the election campaign, according to a Delaware court order from February.

“It’s tough. It’s not how I’m used to doing business. You know, I mentioned being the CEO is a pretty busy job,” she recently tested in court. “Any time I talk to a shareholder, I start the conversation with, ‘I’m talking to you now as Eileen Drake, a shareholder, and not Eileen Drake, the CEO of Aerojet Rocketdyne’,” adding that she had been careful to filter her investor lobbying through her new, third phone along with a separate Gmail account.

Drake’s adversary in the board election is Aerojet’s executive chair, Warren Lichtenstein, who through his listed holding company, Steel Partners, owns 5 per cent of the company. Drake has insisted that his group is the plucky underdog that lacks the deep pockets of his tycoon opponent.

Lichtenstein, however, has sued Drake, accusing her of violating the court’s neutrality order and quietly using the advantages of her office to wage her proxy fight. A Delaware ruling is due this week and the findings in the decision may sway Aerojet shareholders for one or the other.

Lichtenstein, who has already found a replacement for Drake should he triumph, was once her biggest fan. In 2015 he tapped Drake, formerly an executive at Ford Motor and United Technologies, for a role at Steel Partners. Within months, he moved her to Aerojet where Steel had been an investor since 2000 and Lichtenstein had been executive chair since 2016. The company manufactures rockets that power the projectiles that fly into the atmosphere or space including various missiles as well as satellites and other spacecraft and it counts the Pentagon and NASA as key customers.

In 2019, Lichtenstein said that Drake “led the transformation of Aerojet Rocketdyne as CEO and as a member of the board, building a culture of continuous improvement and operational excellence”.

Both have said in recent court testimony that their once productive working relationship unraveled over the company’s attempted $4.4bn sale to Lockheed Martin. Announced in December of 2020, the deal collapsed earlier this year after US regulators sued to block it and prevent Lockheed from vertically integrating missile production.

Drake wrote in short filings that Lichtenstein “pushed to abandon discussions with Lockheed and advocated for a financial re-engineering strategy — a strategy to temporarily boost the company’s stock price, while dissipating cash” followed by threatening his job.

She tested that as the Lockheed discussions progressed, Lichtenstein pressed her to push for an all-stock transaction rather than a cash buyout, even promising that he would buy her a Birkin handbag, a luxury accessory from Hermes whose price tag can exceed $100,000. “And I kind of chuckled it off, but it was a bit inappropriate,” she said in court. Lichtenstein tested he had indeed offered Drake expensive handbags but as a proper incentive to secure a higher deal price.

An Aerojet Rocketdyne engineer works at its facility located at Nasa’s Stennis Space Center © Aerojet

Lichtenstein ultimately joined the board in unanimously approving the all-cash terms of the acquisition. But Drake’s grievances would only compound during 2021. She wrote three separate memos to the board through the course of the year expressing concerns that Lichtenstein in interactions with other defense company executives was undermining Drake while sharing his skepticism that the Lockheed buyout of Aerojet would close.

Drake would go on to accuse Lichtenstein of other objectionable behavior including bullying the company’s investment bankers and inundating Aerojet’s management with data requests. She also later shared that she stopped meeting with Lichtenstein in person as he often insisted that they meet at a restaurant or at his seaside home in southern California on weekends.

“I had absolutely no problem, and I don’t today, if Mr Lichtenstein wants to have a professional meeting in the office, in one of our locations, but I did not at this time, with everything that was going on, want to meet with him in his house, which I typically had to sit on the couch with him.”

Lichtenstein in his testimony said he often conducted meetings at his homes. He has accused Drake of threatening to resign in 2021 if he did not co-operate with his strategy, adding that Drake was no longer fit to be CEO since she had not prepared for the possible termination of the Lockheed deal.

The simmering conflict between the CEO and executive chair boiled over publicly early this year. On January 25, the US Federal Trade Commission announced it would sue to block the closing of the Lockheed transaction. Around then, Lichtenstein proposed to his fellow directors that the existing board should shrink from eight to seven after one director indicated he planned to retire after the upcoming May annual meeting. Drake and her allies were suspicious. Lichtenstein would control four votes, allowing him to jettison the CEO even as a company investigation into his conduct remained ongoing.

Attempts at compromise between the two factions failed and on February 1, Lichtenstein launched his campaign for a full slate of seven directors — his four existing loyalists and three newcomers. And in what would become the flashpoint for the legal dispute between Drake and Lichtenstein, later on February 1, Aerojet distributed an official company press release that said Aerojet was “disappointed” by Lichtenstein’s gambit while it also disclosed publicly for the first time that his 2021 conduct was facing board investigation.

A Lockheed Martin F-35 Lightning II jet at Graf Ignatievo air force base near Plovdiv, Bulgaria
A Lockheed Martin F-35 Lightning II jet at Graf Ignatievo air force base near Plovdiv, Bulgaria © Georgi Paleykov/NurPhoto/Reuters

Lichenstein quickly sought a temporary restraining order from a Delaware court arguing that Drake and the company could not speak on behalf of Aerojet against him without board authorization.

Later in February, the Delaware Court of Chancery granted the restraining order, writing in its opinion that “[w]hile the board remains split on the question of who should serve on the company’s slate of director nominees, the company must continue to stand neutral”.

Drake has argued in his court papers that the company’s management was at liberty to act against the threat that they say Lichtenstein posed to sixteen control of the company. Still, Drake has also maintained that she has abided by the restraining order and denies Lichtenstein’s accusations that she had relied upon company employees and resources to battle her challenger.

“It is the board’s decision to nominate a slate and if it doesn’t, I’m not sure that there can be an official company slate,” said Jill Fisch, a corporate governance scholar at the University of Pennsylvania Law School. “Day-to-day operating decisions even with respect to SEC filings and shareholder communications are typically delegated to management. However, the board is still the ultimate authority on director elections.”

The upcoming June 30 shareholder meeting was only scheduled because Drake requested and received consents from more than 25 per cent of shareholders as the paralyzed board itself did not set a date.

In May, Aerojet released the results of the investigation of Lichtenstein, deciding it would formally reprimand him for inappropriately “expressing skepticism concerning the likelihood of the merger being approved, and approach[ing] two parties to inquire regarding their interest in becoming CEO if the merger did not close and criticizing Ms Drake’s performance”. Lichtenstein was, however, cleared of “harassment” and “retaliation” related to his numerous information requests to Aerojet management.

Despite the bitterness of the dispute, there is a chance that Drake and Lichtenstein settle the proxy fight before the late June vote. A person close to Lichtenstein maintained that Drake had been willing to leave Aerojet for a package of almost $50mn. Drake, in a statement, called that figure “false” and said that “the members of her slate are committed to continue the fight for the election of a board not controlled by Steel Partners”.

Drake had once estimated that the proxy fight could cost her group $10mn in expenses. However, in a recent securities filing, she wrote her expenses would only total $750,000, in part because Aerojet’s company legal and financial advisers quit those roles to join her team either without charge or on a contingency basis. Should the referendum happen and Drake prevail, the new board could then decide to fund all of her expenses — including those for her latest phone.

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