Friday, June 1, 2012
The Economist has a piece on the issue of transaction-related litigation that's worth reading (here). It starts with that gem of a Vonnegut quote from God Bless You Mr. Rosewater that Ron Gilson used in the introduction to his article on Value Creation:
In every big transaction, there is a magic moment during which a man has surrendered a treasure, and during which the man who is due to receive it has not yet done so. An alert lawyer will make the moment his own, possessing the treasure for a magic microsecond, taking a little of it, passing it on.
The Economist editors leave out the best part, which comes immediately after:
If the man who is to receive the treasure is unused to wealth, has an inferiority complex and shapeless feelings of guilt, as most people do, the lawyer can often take as much as half the bundle, and still receive the recipient’s blubbering thanks.
Plaintiffs in the Maryland suit against the HGS board yesterday failed in their bid to get a order to force the board of HGS to pull the pill they put in place last month:
A Montgomery County Circuit Court judge shot down an HGS shareholder’s request for a temporary restraining order to invalidate the “poison pill” the Rockville biotech enacted last month to make it a less attractive acquisition target.
The biotech was sued by shareholder Duane Howell of Baltimore, who claims its management is cheating him, other stockholders and the company itself by rejecting GlaxoSmithKline’s $2.6 billion offer in April, and then instituting the shareholder rights plan, or poison pill. ...
Judge Michael D. Mason said Thursday that HGS had properly accounted for its actions with its shareholders when it issued the poison pill May 16.
No surprise here, I suppose. The bigger surprise would have been if the Maryland judge had ignored both Delaware and Maryland law and order the pill pulled. Odd though, Bloomberg reports that the judge in this case qas concerned that only one shareholder, the litigant, was complaining:
After a hearing on Thursday, Montgomery County Circuit Court Judge Michael Mason denied Howell's request, saying only one shareholder had sued the company, according to a report by Bloomberg News.
"This is not a case where a number of disgruntled shareholders have come to court up in arms," the judge said in court, according to the report.
Even under Maryland law, the number of plaintiffs shouldn't matter to the result. Hmm.
Thursday, May 31, 2012
So, GSK let the HGS annual shareholder meeting slip and didn't seek to replace the board when it had its tender offer open and a meeting before them. Rather, it now appears that GSK will seek to replace the board of Human Genome by written consent. Section 2.12 of the bylaws permit acts by written consent of the shareholders. It will require the HGS board to set a record date before GSK can begin to collect consents. GSK will then have 60 days to collect and deliver consents sufficient to turn out the board. How ahard will that be? Don't know. But, it looks like 45% or so of the shares are held by just five investors: FMR LLC, T Rowe Price, TCW Group, Capital Research Global Investors, and Taube Hodson Stonex Partners.
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.