When a company does something that corporate-governance activists really don’t like, like adopting a poison pill, typically they announce that “the board decided unanimously to punch you in the face for your own good.” There’s some perception that, if they’re all in it together, the directors can’t be up to anything too unsavory. Forest Labs doesn’t have that option:
Forest Laboratories, Inc. (NYSE: FRX) today announced that its newly constituted Board of Directors adopted a stockholder rights plan and declared a dividend distribution of one Preferred Share Purchase Right on each outstanding share of Forest Laboratories common stock.
The Board adopted the rights plan in response to the recent rapid accumulation of a significant portion of Forest’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. The rights plan also has an exception for an offer for all shares that is accepted by a majority of the Company’s shares and treats all shareholders equally.
That must have been an awkward meeting! For those of you sensibly not following the Forest Labs saga, that “newly constituted Board” was newly constituted with Carl Icahn nominee Pierre Legault, who was elected two weeks ago in a proxy contest, beating out one of the company’s nominees. The other nine directors are still the ones who opposed Icahn in the proxy contest. And the rights plan was designed to keep Icahn from buying any more of the company. Presumably it was approved 9-1. Read more »
I remain fascinated by this Carl Icahn – CVR Energy situation and wanted to add two curlicues to my conspiracy theory for why he dropped his bid.
First: while it’s fun to think that he may be unable to pay above $30 for a CVR merger due to let’s say imperfections in his tender offer documentation, there’s another, more broadly applicable, reason not to go above $30. That is: Carl Icahn is a repeat player. He bids for companies sometimes. And if you make a habit of (1) buying 80% of a company in a tender offer for $30 and (2) buying the remaining 20% in a merger a few months later for $31, then you may find it harder to get anyone to tender in your tender offer. Why not hold out for more?, they think, plausibly.
Thus it’s actually a very good idea for Icahn to be a raging asshole to the remaining 20% stub:* the worse he treats them, the more likely the shareholders of his next target are to tender. The holdouts in this deal gambled and lost and are now holding an illiquid stub that they may well end up selling to him on the open market for less than his tender price. Any potential holdouts in his next deal should be quaking in their hypothetical boots.
This only goes so far, though, because the more of a raging asshole you are, the more boards can do to keep you out of the next deal. A guy well known as a defender of shareholder rights against entrenched management tends to be able to put a lot more PR – and legal – pressure on boards than a guy well known for taking advantage of minority shareholders. And Delaware courts at least pay lip service to the idea that boards have more leeway to keep out – via poison pills, etc. – raiders who “coerce” shareholders than those who don’t (see, e.g., etc.).
Carl Icahn’s strangely halfhearted takeover of CVR Energy got even stranger and more halfhearted last night: after acquiring an 82% stake at $30 in a tender offer, and suggesting to the board that they think about selling him the rest of the company at $29, he withdrew that suggestion last night. He gets sort of a sad trombone for this letter:
At the time we made our original offer on August 6th to take CVR Energy private, we stated that we were willing to pay $29.00 per share but in no event would we consider paying more than $30 per share. Since then a number of market conditions have changed, including a significant widening of crack spreads. We no longer think that the proposed transaction is feasible at this time and we hereby withdraw it.
Some background is here.** So this is a neat letter because it sort of sounds like “we no longer think CVR is worth that price” but it surely means “we are not willing to pay the higher price that CVR is now worth and likely to demand” – doesn’t it? Here are CVR’s comps since August 6th:***
Wider crack spreads + the sector trading up = if CVR was worth $29 two weeks ago it’s worth, what, $31 today?**** Or, I mean, you can imagine CVR’s board saying so: “if you were willing to pay $29 two weeks ago why not pay $31 today?” – but it’s weird for Icahn to negotiate himself right out of the deal.
Sell-side M&A work is mostly a pretty good and lucrative business model but it has a few flaws. Try to spot a key one here:
(1) you represent a target;
(2) you spend your days fighting tooth and nail with the buyer to try to make them pay more and give up optionality, and generally to get more of the benefits of the deal for the target than for the buyer;
(3) then the buyer acquires the target, fires all the directors and officers, changes the locks, and replaces the stationery;
(4) then you get paid.
If you want to buy a company you can do it in one of two ways: you can negotiate a merger with the board, put it to a shareholder vote, and if you get above 50% then all the other shareholders are basically forced into the deal and you pay the merger price. Or you can buy shares, typically in a tender offer, and if you get above 50% then you … sort of own the company. But not exactly, because there are still other people who own 49%. And, generally speaking, those other people don’t like you.
Today some of those other people are suing Carl Icahn because (1) he owns about 80% of independent refiner CVR Energy, (2) they own about 20%, and (3) he is being kind of mean to them. Specifically, after tendering for the company and buying most of the shares at $30, he’s been taking advantage of the fact that no one really wants to be a minority shareholder in a controlled company by buying more shares at around $27.50.*
Some of those minority shareholders want to stop him doing this, claiming that “Once any genuinely independent board of directors learned of Icahn’s scheme, such a board would have adopted a poison pill to stop Icahn from making any more open market purchases unless and until the Board was able to negotiate a cash-out merger that provided the Company’s remaining shareholders with fair value.” And so they’re suing to force Icahn’s board to adopt a poison pill and prevent him from buying at market prices. That is strange: Read more »