David v. Human Genome Sciences, Inc., C. A. No. 12-965-SLR (D. Del.) (July 26, 2012).
Did the plaintiffs, security holders of defendant Human Genome Sciences, Inc. (“HGSI”), meet their burden of proof for injunctive relief in order for investors in HGSI to have more time to consider whether to tender their shares?
Short Answer: No. Motion Denied
In April 2012, GlaxoSmithKline plc (“GSK”) made an unsolicited offer for HGSI at $13 per share which was rejected by the Board. On May 10, 2012, GSK initiated a hostile tender offer at $13 per share. GSK extended its offer a couple of times and filed regular amendments to its SEC filings. While HGSI management attempted to shop the company, there were no other interested bidders available.
On July 13, 2012, GSK and HGSI engaged in negotiations and reached an agreement at a price of $14.25 per share which the Board voted to recommend as fair to HGSI’s security holders. On July 16, 2012, HGSI and GSK issued a joint press release announcing that GSK had amended its initial offer to increase the price to $14.25 per share and had extended the expiration date to July 27, 2012. HGSI also explained that its board had determined that the increased offer was in the best interests of the company and its security holders. On July 19, 2012, HGSI filed a further amendment to its 14D-9 containing its recommendation of the offer and its financial advisors’ opinions that the price was fair from a financial point of view to HGSI’s security holders.
Plaintiffs filed suit arguing not that there were misleading statements, insufficient disclosures or inaccurate representations, but rather that GSK’s tender offer should be extended “to give HGSI’s security holders sufficient time to digest the new tender offer price and the 180 degree change in HGSI’s position (from “do not tender” to “tender,” from unfair to fair).” Plaintiffs also argued that the July 16 and July 19 disclosures should be treated as a new tender offer, and because the complexion of the tender offer was fundamentally altered when it changed from a hostile to a friendly offer. Thus, the defendants had violated federal securities laws by attempting to consummate the tender offer in an impermissibly short time period, depriving HGSI’s security holders “of their right to make a fully informed decision regarding their shares”, and irreparable harm should be presumed if security holders are forced to tender their shares without adequate information or time for reflection.
Defendants argued that the July 16 and July 19 disclosures should not be characterized as a new tender offer but only a change in price and that they followed the tender offer rules and, therefore, plaintiffs cannot demonstrate a likelihood of success on the merits.
The Court agreed that defendants had complied with the technical requirements of the SEC’s tender offer rules. In addition, in declining to “exercise its inherent equitable powers to extend the closing of the tender offer”, Judge Robinson noted:
Compliance with the regulations and interpretive guidelines promulgated by the SEC are deemed to be adequate, absent materially deficient disclosures…[and] courts are loathe to interfere in the dynamics of market transactions (again, absent materially deficient disclosures) because of the ‛risk that security holders will lose the opportunity to cash in their investment at a substantial premium.’
Distinguishing one of her prior decisions, Bally Gaming International, Inc. v. Alliance Gaming Corp., No. 95-538, 1995 WL 570643 (D. Del. Sept. 29, 1995) Judge Robinson found that the imposition of a temporary restraining order was not warranted where there was just an increase in the price offered and “nothing but speculation to support the proposition that HGSI’s security holders will have any difficulty digesting the reasoning behind management’s change of heart.
District v. Chancery and “A Sign of the Times”
This District Court decision is unique in that there have not been very many decisions recently in the District of Delaware addressing equitable relief for mergers and acquisitions. The Court of Chancery has cornered the market on that activity in Delaware. While there are similarities in the practice before both courts, there are significant differences. Judge Robinson’s opinion is only nine pages long (with five footnotes) which is a stark contrast to the length of opinions we are used to seeing regarding mergers and acquisitions in the Court of Chancery. And apparently that difference was not lost on Judge Robinson when she stated in footnote No. 4 “[i]t is a sign of our litigious times that today, the single issue of a change in price (at issue) takes 80 pages to explain, while a host of issues could be explained (in Bally) with eight pages.”