Wednesday, May 30, 2007
The Wall Street Journal reports today that Institutional Shareholder Services has recommended that Biomet Inc. shareholders vote against the $10.9 billion cash acquisition of their company by a private equity group consisting of Blackstone Group, GS Capital Partners, Kohlberg Kravis Roberts & Co., and TPG Capital. ISS based this recommendation on that fact that "[a]lthough the deal terms appear fair as of the time of the deal's announcement in December, the rally of the peer group" and Biomet's main joint reconstruction business "imply that there is little takeover premium in the current $44 offer price."
Per the Biomet Certificate of Incorporation, for the merger to go through it must be approved by at least 75% of Biomet’s common shares. Since the vote is based on the number of common shares outstanding rather than the number of votes cast, any failure to vote and broker non-votes will effectively be votes against the transaction. Biomet is organized in Indiana, and there are no dissenter's rights available under Indiana law for this transaction (a different result than in Delaware).
The vote was always likely to be a close one, particularly since Biomet rejected a slightly higher offer from Smith & Nephew on grounds of completion risk. The ISS report makes it that much closer. And the Wall Street Journal reports the story as highlighting of the increasing activism of shareholders in private equity deals. ISS is a for-profit service which makes these recommendations to earn its living, so I am not equally as sure. In fact, we can't even see the ISS report, it is provided only to fee-paying institutional shareholders. Biomet retail shareholders therefore cannot make their own assessment of ISS's analysis or use it to further inform their vote. So, for me the ISS report instead highlights the sometimes large information gap between common and sophisticated shareholders. Unfortunately, acknowledgment of this disparity doesn't help Biomet retail shareholders who are deciding how to vote.
For more on the role of shareholder advisory services in corporate transactions, see the recent article by Paul Rose, a new professor of law at Ohio State, entitled The Corporate Governance Industry.