October 10, 2007
Bioenvision and DGCL 231(c)
When I posted on Bioenvision last week, the Bioenvision board had adjourned its shareholder meeting to approve a merger with Genzyme by one day; a meeting which had just been held. Bioenvision did so because only 47% of the Bioenvision shareholders had voted in favor of the transaction. I remarked at the time that:
The additional day adjournment was a pure Board maneuver to buy time for stockholders to vote in favor or change their votes in favor of the deal. . . . . The next day the Bioenvision stockholder meeting was again adjourned a second time to Oct 10 at the Friday meeting for the proxy tabulator to calculate the exact shareholder vote. I'm a bit puzzled by this maneuver and find it suspect, even bizarre, given the situation. But time will tell.
Things got a bit odder from there. On Tuesday, Bioenvision filed a petition under DGCL 231(c) with the Delaware Chancery Court to reopen the shareholder voting. Bioenvision claimed this was necessary because:
[M]ultiple errors resulted in the potential disenfranchisement of Bioenvision shareholders. First, the parties received a report that mistakenly stated that Bioenvision was approximately 935,635 votes short of the majority. Second, the parties fully expected SG to vote 1.3 million shares in favor of the Merger and were unaware at the time SG submitted its ballot that it was able to only vote 916,000 shares in favor of the Merger – again, far fewer than expected. Third, the proxy from the JPMorgan Client voting in favor of the Merger was intended to be submitted prior to the closing of the polls. In fact, the JPMorgan Client communicated to Bioenvision that it would be voting its entire position in favor of the Merger and instructed JPMorgan to do so. As already noted, at 11:15 am on October 5, JPMorgan called Broadridge with this voting instruction, which Broadridge asked JPMorgan to confirm in writing via facsimile. At some point between 11:15 am and 11:30 am, JPMorgan faxed written confirmation to Broadridge. AST did not receive a transmission of the JPMorgan Client’s vote from Broadridge until 12:12 pm. Fourth, having mistakenly believed that the vote was secured, based on inaccurate information, the polls were prematurely closed.
The result of these errors was that instead of passing by 55% of the shareholder vote, Bioenvision came up short by 0.43%. I'm pretty sure most of you never learned of DGCL 231(c) in corporations class. It states:
No ballot, proxies or votes nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.
One day after the petition was filed Chancellor Chandler issued an order without opinion granting Bioenvision's request. Under the Chancery Court's order, Bioenvision will reconvene the special meeting of stockholders on October 22, 2007 for all Bioenvision stockholders as of the record date of September 5, 2007 to again vote on the transaction.
I'm not sure what to make of all this. I think the decision of the Chancery Court was the right one, but given Bioenvision's previous postponements, the prior tender offer by Genzyme which only yielded 15.3% of the common stock, and the opposition to the deal by a number of shareholders and proxy services, I am still a little unsettled by it. Nonetheless, if the merger would actually have been approved I do still think it is the right decision.
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