M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, November 19, 2009

B&N's Pill

On Tuesday the board of Barnes and Noble adopted a shareholder rights plan -- or a poison pill.  From the board's announcement:

 The Board adopted the Rights Plan in response to the recent rapid accumulation of a significant portion of Barnes & Noble’s outstanding common stock. The Rights Plan is intended to protect the Company and its stockholders from efforts to obtain control of the Company that are inconsistent with the best interests of the Company and its stockholders.

Consistent with Barnes & Noble’s commitment to good corporate governance, the rights will expire in three years and the Company intends to submit the Rights Plan for stockholder ratification within 12 months.

Under the terms of the Rights Plan, the rights will expire on November 17, 2012. The rights will be exercisable if a person or group, without Board approval, acquires 20% or more of Barnes & Noble’s common stock or announces a tender offer which results in the ownership of 20% or more of Barnes & Noble’s common stock.  The rights also will be exercisable if a person or group that already owns 20% or more of Barnes & Noble common stock, without Board approval, acquires any additional shares (other than pursuant to Barnes & Noble’s compensation or benefit plans). If the rights become exercisable, all rights holders (other than the person triggering the rights) will be entitled to acquire Barnes & Noble’s common stock at a 50% discount.
The pill here is notable for a couple of reasons.  First, the pill is time-limited.  Unlike pills of years ago, this rights associated with this plan will expire of their own accord in three year's time.  That's good.  The plan is being adopted for a particular purpose and that purpose is temporally limited.   In years past shareholder rights plans were not written so as to expire.  Second,  the board will seek shareholder ratification for the plan within 12 months.  That's also good.  If the plan is perceived by shareholders to be adding value, they'll endorse it.  If it's simply entrenching management, then shareholders will have a chance to say no to management's adoption of the pill.  

Finally, this plan was adopted quickly by the board in response to a rapid accumulation of stock by an unidentified buyer in the marketplace. (The WSJ thinks it's Ron Burkle of Yucaipa.)  The fact that it was adopted quickly by board resolution in response to changes in the marketplace makes its clear why so many of those finance papers out there that attempt to place a value/cost on a shareholder rights plan are off-base.  In too many of them, the researchers download a database and then run regressions on poison pill dummy without realizing that any company can have a pill in place in a few minutes time.  The data is therefore meaningless.  To top it off, to the extent ISS' corporate governance quotient dings boards for having pills in place, there's a disincentive to keep a shareholder rights plan lying on the books if you don't need it.  Consequently, we're left with Just-In-Time pills like the one adopted by Barnes.  OK, off my soap-box.




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