Company Name: Fifth Third Bancorp
Public Availability Date: January 17, 2007
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 14, 2006
Via Federal Express
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Fifth Third Bancorp Shareholder Proposal
Ladies and Gentlemen:
This letter is written on behalf of our client, Fifth Third Bancorp an Ohio
corporation (the "Company"), with regard to a shareholder proposal (the
"Proposal") submitted to the Company by Howard B. Silverman, an individual
shareholder (the "Proponent") for inclusion in the Company's proxy statement and
form of proxy ("Proxy Materials") for its 2007 annual meeting of shareholders.
On behalf of the Company, we hereby notify the Securities and Exchange
Commission (the "Commission") that the Company intends to omit the Proposal from
its Proxy Materials on the bases set forth below. We respectfully request, on
behalf of the Company, that the staff of the Division of Corporation-Finance
(the "Staff") concur in our view that the Proposal is excludable pursuant to:
I. Rule 14a-8(i)(7), because the Proposal relates to the Company's ordinary
business operations; and
II. Rule 14a-8(i)(1), because the Proposal is not a proper subject for action by
shareholders.
THE PROPOSAL
A copy of the Proposal, together with the Proponent's supporting statement, is
attached hereto as Exhibit A. The Proposal reads as follows:
"Resolved, that the shareholders of Fifth Third Bancorp, assembled at the annual
meeting in person and by proxy, hereby request that the Board of Directors
immediately engage the services of a nationally recognized Investment Banking
firm to propose and evaluate strategic alternatives that could enhance
shareholder value including but not limited to a merger or outright sale of
Fifth Third Bancorp, and the Board of Directors, within ninety days, publicly
announce its progress."
Pursuant to Rule 14a-8(j), enclosed herewith are six copies of this letter and
its attachments. Also in accordance with Rule 14a-8(j), a copy of this letter
and its attachments is being mailed on this date to the Proponent, informing him
of the Company's intention to omit the Proposal from the Proxy Materials.
Pursuant to Rule 14a-8(j), this letter is being submitted not less than 80 days
before the Company files its definitive Proxy Materials with the Commission. The
Company hereby agrees to promptly forward to the Proponent any Staff response to
this no-action request that the Staff transmits by facsimile to the Company or
the undersigned, but not to the Proponent. This letter may be considered to be
an opinion of counsel as it relates to Ohio law.
ANALYSIS
I. Rule 14a-8(i)(7). The Proposal deals with matters relating to the ordinary
business operations of the Company.
Rule 14a-8(i)(7) allows a company to exclude a shareholder proposal that deals
with a matter relating to a company's ordinary business operations. The Proposal
requests that the Company "immediately engage the services of a nationally
recognized Investment Banking firm to propose and evaluate strategic
alternatives that could enhance shareholder value including but not limited to a
merger or outright sale of Fifth Third Bancorp." The Proposal seeks
consideration of "strategic alternatives," which include a number of
non-extraordinary transactions. The Staff has repeatedly permitted the exclusion
of stockholder proposals requesting that a company retain an investment bank to
consider potential transactions that implicate both extraordinary and
non-extraordinary transactions because non-extraordinary transactions are
ordinary business matters. Because the Proposal implicates non-extraordinary
transactions, it is excludable under Rule 14a-8(i)(7).
The Commission has provided the following guidance with regard to the
application and purpose of Rule 14a-8(i)(7):
"The general underlying policy of this exclusion is consistent with the policy
of most state corporate laws: to confine the resolution of ordinary business
problems to management and the board of directors, since it is impracticable for
shareholders to decide how to solve such problems at an annual shareholder
meeting.
The policy underlying the ordinary business exclusion rests on two central
considerations. The first relates to the subject matter of the proposal. Certain
tasks are so fundamental to management's ability to run the Company on a
day-to-day basis that they could not, as a practical matter, be subject to
director and shareholder oversight ... The second relates to the degree to which
the proposal seeks to `micromanage' the Company by probing too deeply into
matters of a complex nature upon which shareholders, as a group, would not be in
a position to make an informed judgment."
Release No. 34-40018 (May 21, 1998).
The Proposal directs the Company to engage an investment banking firm to
"evaluate strategic alternatives that could enhance shareholder value." However,
enhancing the value of a corporation is one of the primary goals of the board of
directors for a for-profit corporation. Similarly, monitoring and assessing the
value of a Company is an ongoing responsibility of a company's board of
directors. The board of directors of the Company routinely considers and
implements business strategies and oversees the management of the Company,
including but not limited to considering the engagement of, and engaging,
third-party advisers to aid the Company to increase shareholder value.
Accordingly, the decision to engage an investment banking firm should be the
responsibility of the board, after consideration of all relevant factors.
Since the policy behind rule 14a-8(i)(7) "is consistent with the policy of most
state corporate laws," the laws of a company's state of incorporation are useful
in determining how the ordinary business exception should apply to a particular
company. Release No. 34-40018 (May 21, 1998). The Company is an Ohio
corporation. Section 1701.59(A) of the Ohio Revised Code provides that "except
where the law, the articles, or the regulations require action to be authorized
or taken by shareholders, all of the authority of a corporation shall be
exercised by or under the direction of its directors." Neither the Company's
articles of incorporation nor its code of regulations limit the power of the
Company's management to conduct its ordinary business under the supervision of
the board of directors. In fact, Article III, Section 3 of the Code of
Regulations of Fifth Third Bancorp as Amended states that the "the business,
properties and affairs of the Corporation shall be managed by the Board of
Directors."
Under the Ohio Revised Code, the only transactions requiring approval of both
the board of directors and the Company's stockholders are mergers where the
company is a target, see Sec. 1701.78(D); combinations or majority share
acquisitions involving the issuance or transfer of the acquiring corporation of
enough shares as to entitle the holders to exercise one sixth or more of the
voting power of the corporation immediately after the consummation of the
transaction, see Sec. 1701.83(A); and sales of all, or substantially all, of the
Company's assets, see Sec. 1701.76(A)(1)(b). The Proposal does not expressly
address any of these transactions and certainly does not address only such
transactions.
The Proposal requires the Board of Directors to "immediately engage the services
of a nationally recognized Investment Banking firm to propose and evaluate
strategic alternatives that could enhance shareholder value including but not
limited to a merger or outright sale..." (emphasis added). While the Proposal
refers to a sale or merger of the Company as one possible alternative, it does
not limit the scope of the Proposal to a sale of the Company or any other
extraordinary corporate transaction. The Board could maximize shareholder value
through any number of actions short of an extraordinary corporate transaction.
The Proposal and its supporting statement, however, broadly encompass both
extraordinary business transactions and ordinary business operations, including
long-term strategic goals of the Company. Consideration of strategic
alternatives to maximize shareholder value clearly is a routine matter and is
incident to the Board's managerial powers under Ohio law.
Therefore, consistent with the guidance set forth in Release No. 34-40018, the
Ohio Revised Code's broad grant of authority to boards of directors and
management, and the Staff precedent set forth below, the Company believes that
the Proposal is excludable because it concerns the engagement of an investment
bank to provide general advice and does not address a specific extraordinary
transaction.
With respect to stockholder proposals relating to the engagement of an
investment bank, the Staff has distinguished between proposals that refer to a
specific extraordinary transaction and proposals that request a company to
obtain more general strategic advice. The Staff has consistently granted
no-action relief under Rule 14a-8(i)(7) with respect to proposals for retention
of an independent third party for the purpose of evaluating strategic
alternatives, even where some of the proposed strategic alternatives may involve
extraordinary transactions.
Notably, in Commercial National Finance Corporation (March 20, 2006) the Staff
permitted the exclusion of a proposal with substantially similar language as the
Proposal. The proposal in question requested that the company retain an
investment banking firm to explore all strategic alternatives which would
maximize shareholder value such as a sale or a merger, and to present a
long-term plan to the shareholders based on the investment bank's report.
Commercial National Finance Corporation was permitted to exclude the proposal,
and the Staff rejected the argument that "strategic alternatives" referred
solely to extraordinary transactions. See, also, Deckers Outdoor Corporation
(March 20, 2006) (proposal to immediately engage the services of an investment
banking firm to evaluate the alternatives that could enhance shareholder value
including but not limited to a merger or outright sale was excludable); First
Charter Corporation (January 18, 2005) (proposal to retain an investment banking
firm to advise about strategic alternatives which would maximize shareholder
value was excludable); BKF Capital Group (February 27, 2004) (proposal to engage
an investment banking firm to evaluate alternatives to maximize shareholder
value, including a sale of the company related to both extraordinary
transactions and non-extraordinary transactions and was excludable); Medallion
Financial Corp. (May 11, 2004) (proposal that an investment banking firm be
engaged to evaluate alternatives to maximize stockholder value including a sale
of the company was properly excluded); Lancer Corporation (March 13, 2002)
(finding that a proposal to retain an investment bank to develop valuation of
the company's shares and to explore strategic alternatives to maximize
shareholder value appeared to relate to non-extraordinary transactions and was
excludable); Sears Roebuck and Co. (February 7, 2000) (excluding a proposal
requesting the company to hire a investment banker to arrange for the sale of
all or parts of the company, because it appeared to relate in part to
non-extraordinary transactions), NACCO Industries (March 29, 2000) (stating that
proposal to retain an investment banker to explore all alternatives to enhance
the value of the company, including a possible sale, merger or other transaction
for any or all assets of the company, appeared to relate in part to
non-extraordinary transactions was excludable).
In a few instances different from the Proposal presented to the Company, the
Staff denied the exclusion under Rule 14a-8(i)(7) of certain proposals that on
the surface appeared to address both ordinary and extraordinary courses of
action. In those cases, the Staff found that the proposal, when read together
with the supporting statement, clearly focused on extraordinary business
transactions. See Temple-Inland, Inc. (February 24, 1998) (finding that the
proposal and its supporting statement focused on possible extraordinary business
transactions); and First Franklin Corporation (February 22, 2006) (finding that
a proposal to engage the services of an investment banking firm to evaluate
alternatives to enhance shareholder value and to take all necessary steps to
actively seek a sale or merger was not properly excludable). Therefore, those
precedents are clearly not applicable to the Proposal at hand because the
instant Proposal, when read together with its related supporting statement,
demonstrates that the Proponent intentionally includes non-extraordinary
transactions. The supporting statement relating to the Proposal focuses almost
entirely on a general discussion of management's performance, turnover in
management, the Company's financial performance, and return to shareholders.
Such matters clearly relate primarily to ordinary business operations. On the
other hand, the Proponent's supporting statement contains only one sentence in
four paragraphs that even mentions a possible sale of the Company.
Because the Proposal read along with the supporting statement does not
specifically and exclusively advocate one or more extraordinary corporate
transactions, and is drafted in a manner that emphasizes the general exploration
of strategic alternatives, it relates primarily to ordinary business matters and
may be properly excluded under Rule 14a-8(i)(7).
II. Rule 14a-8(i)(1). The Proposal is not a proper subject for action by
shareholders under the laws of the jurisdiction of the Company's organization.
Rule 14a-8(i)(1) permits exclusion of shareholder proposals if "the proposal is
not a proper subject for action by shareholders under the laws of the
jurisdiction." The official note to this section states "some proposals are not
considered proper under state law if they would be binding on the company if
approved." The Staff further elaborated that "proposals by security holders that
mandate or direct a board to take certain action may constitute an unlawful
intrusion on the board's discretionary authority under the typical [corporate]
statute." Exchange Act Release No. 34-12999 (November 22, 1976). The Proposal
seeks to require the Company to "immediately engage the services of a nationally
recognized investment Banking firm to propose and evaluate strategic
alternatives that could enhance shareholder value..." (emphasis added). The
language of the Proposal is not a request or recommendation to the Board, but is
mandatory. As such, the Proposal is not a proper subject for action by
shareholders under Ohio law, as its mandate interferes with the authority and
discretion granted to the Board under the Ohio Revised Code.
The Ohio Revised Code provides that "except where the law, the articles, or the
regulations require action to be authorized or taken by shareholders, all of the
authority of a corporation shall be exercised by or under the direction of its
directors." (O.R.C. Section 1701.59(A)). Because the Proposal seeks to require
the Board to take action which is committed by the Ohio Revised Code to the
discretion of the Board, the Proposal is not a proper subject for shareholder
action under Ohio law and therefore may properly be excluded under Rule
14a-8(i)(1). See Keystone Financial, Inc. (March 15, 1999) (finding that a
proposal worded in such a way as to bind the board in violation of corporate law
may be properly omitted).
CONCLUSION
For the reasons set forth above, the Company believes that the Proposal may be
properly excluded as relating to ordinary business matters under Rule
14a-8(i)(7). In addition, or alternatively, the Company also believes that the
Proposal may be properly omitted under Rule 14a-8(i)(1) because it is not a
proper subject for shareholder action under Ohio law.
We hereby respectfully request that the Staff confirm that it will not recommend
any enforcement action if the Proposal is excluded from the Company's Proxy
Materials. Although we have no reason to believe that the Staff will not be able
to do so, if it appears that the Staff will not be able to grant the relief
requested herein, we would appreciate the opportunity to further discuss this
matter with the Staff prior to its issuance of a written response. If any
additional information is needed with respect to the matters set forth herein,
please contact the undersigned at (513) 629-2828.
Very truly yours,
GRAYDON, HEAD & RITCHEY LLP
/s/
Richard G. Schmalzl, Esq.
RGS
c: Paul L Reynolds, Esq.
Howard B. Silverman (via Certified Mail)
[APPENDIX]
Fifth Third Bancorp Shareholder Proposal
Resolved, that the shareholders of Fifth Third Bancorp, assembled at the annual
meeting in person and by proxy, hereby request that the Board of Directors
immediately engage the services of a nationally recognized Investment Banking
firm to propose and evaluate strategic alternatives that could enhance
shareholder value including but not limited to a merger or outright sale of
Fifth Third Bancorp, and that the Board of Directors, within ninety days,
publicly announce its progress.
Supporting Statement
You are urged to vote "FOR" this proposal.
On March 9, 2006, this shareholder wrote to the Board of Directors, suggesting
three actions that the Board might take in order to enhance shareholder value,
including the action that is the subject of this shareholder proposal. In that
letter, this shareholder cited declining earnings, decline in the value of the
company's stock, high turnover of executive management, weaknesses in internal
controls, underperforming stock when compared to peers, analyst downgrades, and
other negative indicators. To date, none of this shareholder's suggestions have
been announced by the company as having been adopted by the Board.
In connection with the 2006 annual meeting of shareholders, Institutional
Shareholder Services, a nationally recognized proxy advisory firm, recommended
that shareholders withhold their votes from directors who were up for
reelection, for failing to aggressively address the company's poor long-term
financial performance. Their reason given for such recommendation was consistent
underperformance on both an absolute and relative basis, and the lack of a
demonstrated turnaround strategy. The nominees, although elected, received votes
of only 75% of the shares eligible to vote at the meeting. To date, the company
has not announced any turnaround strategy.
As shown in the chart in the Company's 2006 Proxy Statement, the cumulative
return to shareholders over the years 2001 through 2005 was significantly lower
than all comparable measurements. In fact, according to Institutional
Shareholder Services, the company's one-, three-, and five-year total
shareholder returns were each negative, and these returns significantly
underperformed the company's peer group returns over these time periods.
In a January 2006 conference call with analysts, the Company's chief executive
officer stated that at the current price level of the stock, he would not be
interested in a sale of the company. It is now time for the owners of the
Company to speak. Your vote "FOR" this proposal will tell the Board of Directors
that the shareholders want to enhance the value of their holdings.
[INQUIRY LETTER]
December 19, 2006
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Fifth Third Bancorp Shareholder Proposal
Ladies and Gentlemen:
On December 14, 2006, counsel for Fifth Third Bancorp (the "Company") wrote to
the Commission that it intends to omit from its Proxy Materials a Shareholder
Proposal that I had submitted to the Company in accordance with Rule 14A
promulgated under the Securities Exchange Act of 1934. Although a response on my
part is not required, please consider this letter to be a response and a request
that the Commission rule that the Shareholder Proposal is not excludable from
the Company's Proxy Materials in connection with its 2007 annual meeting of
shareholders.
The Proposal reads as follows:
"Resolved, that the shareholders of Fifth Third Bancorp, assembled at the annual
meeting in person and by proxy, hereby request that the Board of Directors
immediately engage the services of a nationally recognized Investment Banking
firm to propose and evaluate strategic alternatives that could enhance
shareholder value including but not limited to a merger or outright sale of
Fifth Third Bancorp, and that the Board of Directors, within ninety days,
publicly announce its progress."
Pursuant to the Commission's rules, enclosed herewith are six copies of this
letter. In addition, a copy of this letter is being mailed to Counsel for the
Company and to the Secretary of the Board of Directors of the Company.
Counsel for the Company stated two reasons for excluding the proposal:
I. Rule 14a-8(i)(7), because the Proposal relates to the Company's ordinary
business operations; and
II. Rule 14a-(i)(1), because the Proposal is not a proper subject for action by
shareholders.
ANALYSIS
It is brought to the attention of the Commission that the wording of the
Proposal is substantially the same wording as in proposals that had been
included in the proxy materials of other companies, and that such wording had
previously been determined by the Commission to be non-excludable.
The following is in response to the arguments presented by counsel for the
Company:
I. Rule 14a-8(i)(7). The Proposal deals with matters relating to the ordinary
business operations of the Company.
The Proposal requests the that "the Board of Directors immediately engage the
services of a nationally recognized Investment Banking firm to propose and
evaluate strategic alternatives that could enhance shareholder value including
but not limited to a merger or outright sale of Fifth Third Bancorp." Please
note that this proposal is made in the form of a request to the board of
directors. Such request does not deal with the ordinary banking operations of
the Company. Staff, in the past, has permitted such shareholder proposals to be
included in proxy materials of other companies.
II. Rule 14a-8(i)(1). The Proposal is not a proper subject for action by
shareholders under the laws of the jurisdiction of the Company's organization.
Counsel for Company is wrong when he states "the proposal seeks to require the
Company to immediately engage the services of a nationally recognized investment
Banking firm to propose and evaluate strategic alternatives that could enhance
shareholder value... (emphasis added)" In fact, the Proposal does not require
the Company to take action, but rather the Proposal requests that the Board of
Directors take certain action. As a request, even if approved by a majority of
shareholders voting at the meeting, the board of directors still has the option
of accepting or rejecting the request. Accordingly, such proposal is a proper
subject for action by shareholders.
CONCLUSION
For the reasons set forth above, I, as proponent of the Shareholder Proposal,
believe that the Proposal may not be excluded from the Company's Proxy
Materials. I therefore request that the Staff inform the Company's counsel that
the Proposal may not be excluded from the Company's forthcoming Proxy Materials
and that the Commission will initiate enforcement action if the Company does not
include the Proposal in its forthcoming Proxy Materials.
Very truly yours.
/s/
Howard B. Silverman
cc: Richard G. Schmalzl, Esq., Graydon Head & Ritchey, LLP
Paul L. Reynolds, Fifth Third Bancorp
STAFF REPLY LETTER]
January 17, 2007
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Fifth Third Bancorp Incoming letter dated December 14, 2006
The proposal requests that the board of directors immediately engage the
services of an investment banking firm to propose and evaluate strategic
alternatives that could enhance shareholder value including but not limited to a
merger or outright sale of Fifth Third Bancorp and publicly announce its
progress within ninety days.
There appears to be some basis for your view that Fifth Third Bancorp may
exclude the proposal under rule 14a-8(i)(7), as relating to Fifth Third
Bancorp's ordinary business operations. We note that the proposal appears to
relate to both extraordinary transactions and non-extraordinary transactions.
Accordingly, we will not recommend enforcement action to the Commission if Fifth
Third Bancorp omits the proposal from its proxy materials in reliance on rule
14a-8(i)(7). In reaching this position, we have not found it necessary to
address the alternative basis for omission upon which Fifth Third Bancorp
relies.
Sincerely,
/s/ s
Rebekah J. Toton
Attorney-Adviser
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