April 16, 2009 / 7:24 PM / 11 years ago

Amylin deal may not guard shareholders-RiskMetrics

BOSTON, April 16 (Reuters) - RiskMetrics Group Inc, a shareholder advisory service, said it does not believe a recent legal settlement will protect shareholders of Amylin Pharmaceuticals Inc AMLN.O from being hurt should there be a change of control of its board.

San Diego-based Amylin, which makes the diabetes drug Byetta in a 50-50 partnership with Eli Lilly & Co (LLY.N), faces proxy battles from billionaire investor Carl Icahn and, separately, from Eastbourne Capital Management.

Amylin has several “poison puts” and “poison pills” in place that are making it difficult for the dissidents to speak to each other or propose anything but a minority slate.

Poison puts are typically set in place to protect bondholders from a takeover by a company with a lesser credit rating. Poison pills are designed to protect shareholders by making a hostile acquisition more expensive for a buyer.

Amylin’s poison puts kick in should there be a majority change of the board. As a result, neither Eastbourne nor Icahn can put up a majority slate. Neither can they talk to each other, because then they would be acting in concert — something that would trigger the poison pill.

In March the San Antonio Fire & Police Pension Fund sued Amylin in Delaware, saying the poison puts, which could accelerate repayments of more than $900 million in debt, could coerce shareholders into voting against the dissident slates, unfairly tilting the field towards the incumbent board.

Under a settlement, announced on Wednesday, Amylin’s board agreed to exercise its authority under one of two at-issue debt agreements — the $575 million 2007 notes indenture — to “approve” the Icahn/Eastbourne slates, for the limited purpose of avoiding redemption of the debt.

In return, the plaintiffs, which also include Icahn, would waive bad faith-related claims, but retain the ability to challenge Amylin’s poison put agreements as a violation of the board’s duty of care and of Delaware statuary law.

According to a report from RiskMetrics, even if the Delaware court agreed to give Amylin the authority to “approve” the minority slates, there would be no possibility for Amylin to “approve” the slates to avoid accelerating repayment of at least up to the $125 million term loan and $15 million revolving credit facility.

Amylin, which has a market value of $1.4 billion, posted a loss of $315.4 million in 2008 on revenue of $840 million.

“While Delaware courts have historically accorded substantial deference to ‘arms-length’ contracts between a corporation and third parties (including creditors), a heightened standard of review arguably is appropriate in situations where corporations enter into contract-based covenants that may unreasonably impinge upon the shareholder franchise,” RiskMetrics said. (Reporting by Toni Clarke, editing by Gerald E. McCormick)

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