Monday, January 10, 2011
Tenet Healthcare (a Nevada corp) is in the midst of fighting off an unsolicited $3.3 billion offer from Community Healthcare Systems. The Tenet board characterized the CHS offer (a 40% premium) as "inadequate and opportunistic" and "grossly undervaluing" Tenet and "not in the best interests of Tenet or its shareholders."
On Friday, Tenet announced that it had adopted a shareholder rights plan to protect its NOLs and ward off CHS. You'll remember that last Fall the Delaware Supreme Court approved rights plans intended to protect corporate assets like NOLs. The plan triggers at the 5% level. This level is low compared to typical shareholder rights plans geared toward warding off hostile bidders which more typically trigger at 15-20%. We could have a whole other discussion about the proper levels to trigger the pill, but let's leave that for another day.
What caught my attention was this:
On January 7, 2011, the Board approved the amendment and restatement of the Company’s Amended and Restated Bylaws (as amended and restated, the “ Bylaws ”), effective as of January 7, 2011. The principal change effected by the adoption of the amended Bylaws is to amend Section 2.2 of Article II of the Bylaws to remove the restriction that the annual meeting of stockholders must be held not later than 210 days following the Company’s fiscal year end and instead provide that the annual meeting of stockholders shall be held on the date and at the time as set by the Board.
The effect of course is to permit the board to delay the next shareholders meeting which should occur in May 2011 until November 2011. That gives the Tenet directors an annual term of 18 months - for this year at least. Now, when Airgas' shareholders did the reverse of this maneuver, the Delaware Supreme Court came to the rescue of the board in what - to be candid - was a confusing head-shaker of an opinion. Of course, delaying shareholder meetings is a common enough strategy, but it looks now like it's only a one way street. Boards will be free to delay meetings and get "annual" terms of 18 months, but following Airgas, shareholders are not permitted to move them up if moving them up shortens director terms to anything less than, I guess, 365 days. Of course, I'm assuming that the Nevada courts adopts the Delaware view, perhaps they will take a different view on this question if it ever comes before them.
Update: While the Delaware code (Sec. 211) requires that an annual meeting be held not later than 13 months after the previous annual meeting, there is no similar requirement under the Nevada corporate law. I suppose this means that while "annual" now means 365 days in Delaware, it still has a very expansive meaning in Nevada.