Wednesday, May 30, 2012
A shareholder of Human Genome Sciences has filed a lawsuit in Maryland challenging actions by HGS' board to adopt and maintain a shareholder rights plan to fend off an unwanted offer by GlaxoSmithKline.
Early in May GlaxoSmithKline commenced a $2.6 billion unsolicited tender offer for Human Genome Sciences. HGS recommended its shareholder not tender and adopted a mild poison pill (it expires in one year). Why a mild pill? Well, i guess HGS hasn't taken GSK's offer all that seriously. I mean, HGS didn't adopt the pill until May 16 -- almost a week after the tender commenced. HGS doesn't have a staggered board, so a pill wouldn't survive a proxy contest in the event that GSK is successful in any event. So it's all kind of milque-toast. That's bad enough, but GSK's response, to HGS' pill is pretty weak-kneed: if the board leaves the pill in place, then it will drop its bid.
I have to admit, I'm a little disappointed that GSK's board is so unserious. No doubt, their counsel has advised them that absent a staggered board, the most the pill can do is delay a contingent tender offer/proxy contest for one election season. So, the pill, absent the staggered board, isn't all that strong a defense. With that knowledge, GSK let slip the annual shareholder meeting, which was held on May 16 -- during the open tender offer and the same day the pill was adopted -- without putting up its own slate of directors.
Anyway, in response to all this, a shareholder has filed a suit -- I know, that's not news. In the suit, the shareholder alleges various violations of fiduciary duties attributable to the board adopting a pill and refusing to negotiate with GSK. One would have thought that with Airgas, these kinds of suits would have disappeared. But no. Perhaps that's why plaintiffs brought this case in Maryland rather than in Delaware (the state of incorporation). Perhaps they thought a Maryland judge would not understand Delware law sufficiently to apply the "Just Say No" defense articulated in Airgas. Perhaps. Perhaps such a judge would rely on what that judge knows, for example the Maryland corporate law. In particular, the judge might look to §2-405.1, delineating the standard of care required of directors of Maryland corporations. If that's what the plaintiffs are hoping, they are going to be sorry. Maryland is one of a large number of states that have written Unocal out of their code/common law. In fact, in the context of an unsolicited proposal, board decisions to defend the corporation all get the protection of the business judgement presumption. Here it is, right here:
§2-405.1(f) No higher acquisition duty.- An act of a director relating to or affecting an acquisition or a potential acquisition of control of a corporation may not be subject to a higher duty or greater scrutiny than is applied to any other act of a director.
No intermediate scrutiny, no enhanced scrutiny, just business judgment. If this case were brought under Maryland law, it would clearly go nowhere. OK, so other than fees to make them go away, it's not clear what the plaintiffs are looking for with this suit. Well, if the acquirer isn't going to be serious, I suppose it's too much to expect the plaintiffs to be serious.