Friday, April 3, 2009

Dissidents Avoid Forming a "Group" and Triggering Poison Pill

In a move that continues to shift the balance of power in proxy contests away from the Corporation and toward dissident investors, the SEC agreed this week to allow two activist investors to "round out" a slate of director nominees by permitting them to (1) solicit votes for their own nominees, (2) vote for nominees of an unrelated dissident, (3) vote for the nominees in management's proxy statement.

The SEC's action will undoubtedly have far-reaching implications for corporations concerned with activist investors.

Amylin Pharmaceuticals - Case in Point

Two dissident shareholders - Carl Icahn and Eastbourne Capital Management (ECM), who have each nominated a short slate of five director nominees for election to Amylin's (AMLN) twelve person board at the next annual meeting may state their intention to vote for each other's nominees. Without this approval from the SEC, the two dissident investors would have to change their filing status with the SEC to reflect that they are acting as a "Group". By doing so, the two shareholders would have to combine their ownership positions (
Icahn owns 8.3% and Eastbourne owns 12.5%) which would have breached the threshold on AMLN's poison pill - which is set at 15%.

In a Client Alert about this matter issued on April 2 by the law firm Schulte Roth & Zabel (Mark Weingarten from SRZ is one of our regular contributing experts on activism) the authors conclude:

"The Commission Staff's grant of relief to ECM and the Icahn Funds will further enable soliciting stockholders who are seeking to elect a short slate to "round out" their slate with candidates from the full selection of nominees, even those proposed by another dissident. This new interpretation will allow activists to pursue their goal of achieving better shareholder representation, will allow shareholders to vote for the directors of their choice, and will keep management slates from gaining an advantage when there are multiple dissident slates nominated by unrelated shareholders. Going forward, this scenario may become more common in the activist community..."

To read SRZ's entire Client Alert click here.
To read a Client Alert issued by Gibson Dunn & Crutcher click here.
(Eduardo Galladro from Gibson Dunn is one of our Blog & Tacklers)

Posted by Damien Park, President Hedge Fund Solutions