It s a Hostile World: Takeover Defense and Hostile Deals

Transcription

1 Practising Law Institute Doing Deals 2017 It s a Hostile World: Takeover Defense and Hostile Deals Trevor S. Norwitz 1

2 Case Study: The Battle for Medivation San Francisco-based biopharmaceutical company Founded in 2004 Key drug is XTANDI (leading treatment for prostate cancer) Partners with Astellas 2015 $1.9 billion worldwide sales 2020 projection: $4.8 billion Diversified pipeline of late- and mid-stage biotech assets 2

3 Stage 1: Initial Approach (and Rebuff) 1 3/22: Sanofi CEO reaches out to Medivation CEO. Rumors surface that Sanofi is considering a bid - Medication stock price starts to rise. 4/3 Medivation CEO tells Sanofi CEO Board thinks not the right time 4/15 Sanofi sends unsolicited private bear hug letter offering $52.50 per share in cash 4/28: Sanofi makes its $52.50 offer public (then a premium of <1% to trading value). 4/29: Medivation s Board unanimously rejects Sanofi s substantially inadequate offer and adopts bylaw amendments adding consent solicitation procedures and adopting Delaware as exclusive forum. 5/4: Sanofi sends a letter to Medivation s Board of Directors threatening a consent solicitation. 5/5: Medivation reiterates its rejection of Sanofi s $52.50 proposal. 3/22 5/ Mar 22 Apr 21 May 21 Jun 20 Jul 20 Aug

4 Hostile Acquiror Tactics Less Coercive Coercive Private Approach 1 Private conversation between bidder and target CEO 2 Private conversation between bidder and target chairman / select board members 3 Private letter from bidder to target CEO / board members 4 Acquire stock without public disclosure (less than 5% and less than $80.8 million) million) PRIVATE / PUBLIC LINE 5 On-Record conversation between bidder and board members / management management More Coercive Coercive 6 Acquire stock with public disclosure (greater than 5% or $80.8 million or announce) 7 Discussion of potential deal with analysts / third parties 8 Publicly disclosed bear hug letter (tone and firmness varies) 9 Proxy fight / consent solicitation 10 Public tender / exchange offer (perhaps combined with litigation) 11 Public tender offer / exchange offer / litigation plus proxy fight Public Approach 4

5 Medivation s Defensive Profile Defense Type Description Medivation % of S&P 500 with Defense* Classified Board Prevents dissidents from taking control of the board in one election 11.06% Directors Can Be Removed Only for Cause Restricts dissidents from removing directors outside of normal election cycle 30.21% Shareholders Unable to Act by Written Consent Shareholders Rights Plan Board May Fill All Vacancies No Cumulative Voting Shareholders Unable to Call a Special Meeting Prevents stockholders from acting without a meeting (including to wage a proxy fight outside of normal election cycle) 70.64% Prevents raider from acquiring more than a specified percentage of stock without cooperation from the board 3.60% Stockholders cannot increase the size of the board and/or remove directors and stack the vote by filling vacancies 79.15% Cumulative voting favors short slates 97.45% Restricts dissidents from waging proxy fight outside of normal election cycle 37.45% * Source: SharkRepellent, as of April 28, 2016 Indicates Medivation lacks defense type Indicates Medivation has defense type 5

6 Medivation s Defensive Profile (cont d) Defense Type Description Medivation % of S&P 500 with Defense* Advance Notice of Shareholder Proposal or Directors Nomination Provides board with advance warning of proxy fight; Medivation s bylaws require days N/A Supermajority Voting Requirement to Amend Certain Protective Provisions in Charter and Bylaws Generally effective only with classified board 41.49% (Charter); 26.81% (Bylaws) Supermajority Approval for Business Combinations Certain business combinations require approval of supermajority voting power 21.70% Blank Check Preferred Stock Useful for white squire issuance or rights plan 95.74% Exclusive Forum Provision * Source: SharkRepellent, as of April 28, 2016 Designates Company s state of incorporation as the sole and exclusive jurisdiction for stockholders to bring derivative lawsuits, claims for breach of fiduciary duty or violations of the Charter, Bylaws or state corporate law [] N/A Indicates Medivation lacks defense type Indicates Medivation has defense type [x] Indicates Board adopted in response to bid 6

7 Stage 2: The Hostile Takeover Bid /10: Medivation starts talking to other potential buyers and agrees to open its books to Pfizer among others. (Pfizer s initial offer to be a white knight was April 20; others were earlier) 5/25: Sanofi commences consent solicitation to replace Medivation s board. Medivation files a counter-solicitation urging its stockholders to reject. 6/8: Sanofi presentation on its proposed acquisition. Medivation responds alleging misleading claims. 6/21: Medivation board instructs advisors to contact potential buyers and explore alternatives. 6/27: Sanofi sends private letter increasing its offer to $58 per share in cash and $3 per share in the form of a contingent value right (CVR) relating to Talazoparib (a drug that aids in DNA repair) sales performance. Sanofi Board rejects but offers to enter into a confidentiality agreement. 7/5: Sanofi terminates its consent solicitation and signs an NDA with a six-month standstill. 3/22 7/ Mar 22 Apr 21 May 21 Jun 20 Jul 20 Aug

8 Stage 3: Exploration of Strategic Alternatives (and Sale) 4 5 7/5: Also on July 5, Medivation announces Sanofi s increased offer and that it has entered into the NDA with Sanofi and several other parties. 8/8: In the initial round of bids, Pfizer offers $65. Medivation runs an auction negotiating simultaneously with five active bidders. 8/19 On final bid Friday Medivation receives 4 definitive bids ranging from $72.50 to $77 per share. 8/22: Pfizer and Medivation enter into a definitive merger agreement under which Pfizer will acquire Medivation for $81.50 per share in cash (a premium of 21% to trading value, 57% to the day before Sanofi s public bid and 70% to 52-week average price). 3/22 8/ Mar 22 Apr 21 May 21 Jun 20 Jul 20 Aug

9 Some take-aways from the Medivation Battle A hostile approach can drive your quarry into the arms of a competitor Targets with no staggered board (and action by consent!) are highly vulnerable CVRs are not given full credit by sellers, especially in hostile situations On the other hand, a spin-off company (as Actelion negotiated with J&J) can be very favorably viewed In an auction if you can jockey multiple horses down to the finish line, you can add a lot of value It s all in the timing Actelion recently sold to J&J for $30 billion In 2011 Elliott tried to force sale (then a $7 billion company) Another lesson: careful where you park your corporate jets! 9