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Stock Analyst Update

Pioneer Continues to Feel Shareholder Heat

War of words escalates over proxy fight and possible sale.

The battle between venerable but struggling fund manager Pioneer Group  and activist shareholder group Lens Asset Management got a little hotter Monday.

Charges and countercharges have flown as a proxy fight over control of the money manager’s board of directors has heated up in the weeks before the company’s annual meeting in May.

The latest barrage, however, came in a sharply worded letter to shareholders filed with the Securities and Exchange Commission by Lens on Monday in response to a series of retention agreements approved earlier this month by the company’s current board. Charging that the move represents an attempt to redirect some of the possible proceeds from a sale into management's pockets, Lens is asking shareholders to elect a majority of Lens' candidates to the board in an effort to win control and advance its aim of selling the company.

Lens, which owns 4.1% of Pioneer, has called for a quick sale in an effort to bolster the company's stock price. Charging that Pioneer has "diluted its human and financial capital," Lens said the company's shares should fetch between $29 to $42 a share, much higher than Monday's closing price of 23 13/16.

Shares of the money-management firm have been trading around their 52-week high in anticipation of a possible sale, but were more than 50% below their December 1997 peak when Lens first launched the proxy battle.

Citing a favorable market and such poor performers as a gold-mining operation in Ghana and a Russian logging venture that failed to pan out, Lens charges that the company has gotten away from its core business and needs a buyer to refocus its operations. Pioneer, for its part, announced last month it had hired investment bankers Merrill Lynch  and Salomon Smith Barney to explore strategic alternatives, including its possible sale.

The retention agreements, outlined in an earlier SEC filing, provide for top executives to receive significant cash outlays--commonly referred to as "golden parachutes"--of up to six times their annual salary, should the company either be sold or merged. According to Lens, the move came three days after the shareholder’s group sent a letter to Pioneer’s president and chief executive officer, John F. Cogan, Jr., detailing its intentions.

Cogan, for his part, was listed in the company’s filings as having declined to participate in the retention agreements, but had entered into a separate agreement with the company calling for a payment of $1 million as a result of either a sale or a merger. Such a payment would be in addition to the value of the 100,000 stock options recently granted to him.

Richard Bennett, director of governance at Lens, called the retention agreements "extreme" and said their ultimate outcome, should the company be sold, would amount to rewarding management for bad performance. "In general, we find the timing and substance of the severance package to be offensive," he said.

For its part, Pioneer’s management said it has taken the necessary first steps to revive the company’s share price and boost shareholder value. In a recent letter to shareholders, Cogan urged shareholders to retain the current board and, pointing to the investment bankers already brought on board, cautions shareholders not to "start the process over."

Events may speed up quickly, however. Already, published reports suggest that Europe’s third-largest bank, UBS   is the leading candidate to buy Pioneer, the nation’s fourth-oldest fund family. Should the battle not be ended with a sale soon, however, investors may see an even longer battle.

Mark Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.