DealLawyers.com Blog

Vioxx, then Celebrex. What’s next? Would it surprise anyone that there’s some dog-piling in the works on the All-American-Safer-than-Aspirin Poison Pill?

First, you have the Wall Street Journal (“How a Judge’s Ruling May Curb “Poison Pill” As Takeover Defense,” December 13, 2004) speculating that Delaware Vice Chancellor Strine may ready to punt PeopleSoft’s pill. The article quoted a 2000 decision by the Vice Chancellor: “If stockholders are presumed competent to buy stock in the first place, why are they not presumed competent to decide when to sell in a tender offer?” Hmmm, that seems to make sense especially if the stockholders are institutional investors like hedge funds who are as bottom line as you can get when talking about “maximizing shareholder value” (hint: that’s fund code for “make my 20% promote even fatter”).

Second, Institutional Shareholder Services (www.issproxy.org) tweaked its Voting Guidelines for 2005 to recommend withholding votes for directors who adopt or renew pills without shareholder approval:

“Recommend WITHHOLDING votes from all directors (except from new nominees) if the company has adopted or renewed a poison pill without shareholder approval since the company’s last annual meeting, does not put the pill to a vote at the current annual meeting, and there is no requirement to put the pill to shareholder vote within 12 months of its adoption. The policy will be applied prospectively. Pills adopted prior to this policy will not be considered. If a company that triggers this policy commits to putting its pill to a shareholder vote within 12 months of its adoption, we will not recommend a WITHHOLD vote. “

According to ISS, shareholders have expressed strong support for ratification of poison pills by shareholders. Of the 52 shareholders proposals on this issue in 2004, 40 received a majority of the shares cast. ISS believes that shareholders should have a voice in the adoption of a poison pill and its corresponding features.

Interesting times for a director pondering a pill: You have a high-profile Delaware judge gunning for a pill to pull (which, of course, may open you up for a breach of fiduciary duty claims by your friendly, neighborhood strike suit lawyer) AND you have ISS trying to pull your director’s chair from under you if you vote to approve or renew a pill.

With the potential side effects of a poison pill becoming more painful, you would think this situation warrants elevation of the “Director in Crosshairs Advisory System” to Code Red.

Under the wrong circumstances, even a spoonful of sugar may not be of much help…