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Boston College Law School

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Sunday, October 7, 2007

Bioenvision: Pulling a Topps or an OSI?

Last week Bioenvision engaged in similar maneuvers as OSI Restaurant Group took earlier this Spring in attempting to gain stockholder approval of Bioenvision's troubled deal to be acquired by Genzyme.  The Bioenvision board convened the meeting on Oct. 4 and then promptly obtained a shareholder vote to adjourn the meeting to the next day on Friday, Oct 5 (here is the similarity with OSI which did a similar thing).  The reason why?  Only 47% of the Bioenvision shareholders had voted in favor of the transaction.  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.  Under Delaware law Bioenvision needs an absolute 50% majority to approve the transaction.  And as a technical matter, this is different than what Topps did.  The Topps Board relied on Strine's recent decision in Mercier, et al. v. Inter-Tel to post-pone its shareholder meeting itself in order to (successfully) gain time for stockholders to approve its transaction.  This is different than Bioenvision where the stockholders themselves voted to adjourn the meeting.  Accordingly, Bioenvision's maneuver was less egregious than Topps's in that the shareholders here acted under Bioenvision's by-laws and this was not an act of the Board.  To explain why these companies took these different tacts start with the by-law provision which Bioenvision relied upon:

1.7 Adjournments. Any meeting of stockholders may be adjourned to any other time and to any other place at which a meeting of stockholders may be held under these Amended and Restated Bylaws by the stockholders present or represented at the meeting and entitled to vote, although less than a quorum, or, if no stockholder is present, by any officer entitled to preside at or to act as Secretary of such meeting. It shall not be necessary to notify any stockholder of any adjournment of less than 30 days if the time and place of the adjourned meeting are announced at the meeting at which adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting.

This is a rather flexible version of this by-law.  Compare this with the Topps's by-laws which contain no provision for shareholder adjournment of meetings except in the absence of a quorum.  And since the Delaware General Corporation Law contains no default rule as to how to handle adjournments outside the no quorum context, Topps was left with some uncertainty as to how to go this route and in particular the required vote to adjourn the meeting (i.e., absolute majority or majority of quorum, etc.).  Topps attempted to address this in their proxy statement by including an item that:

To approve the adjournment of the special meeting for, among other things, the solicitation of additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve and adopt the Merger Agreement and the transactions contemplated thereby, including the merger . . . .

Nonetheless, the uncertainty on the threshold vote required to adjourn may explain why Topps opted for the more problematical option of the Board post-poning this meeting rather than the stockholders.  I say problematical because post-Mercier these decisions are still subject to a higher standard of Blasius review under Delaware law for these Board-initiated postponements albeit with wide latitude under the specific holding of the Mercier opinion.  In contrast, the Bioenvision postponement was a simple exercise of discretion under the by-laws. 

Accordingly, M&A lawyers conducting target takeover reviews would be well advised to revise their client's by-laws to include a provision similar to one in Bioenvision's by-laws to provide their boards with maximum latitude to protect agreed deals and avoid a Mercier problem.  I know, this goes against my general pro-stockholder stance but still, this is the way it works.   

The Bioenvision stockholder meeting was again adjourned 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. 

http://lawprofessors.typepad.com/mergers/2007/10/bioenvision-pul.html

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