Human Genome Sciences Inc. defeated a challenge to a takeover defense designed to fend off a $2.6 billion hostile buyout bid by drugmaker GlaxoSmithKline (NYSE: GSK).
After a morning hearing Thursday, Montgomery County Circuit Court Judge Michael Mason in Rockville, Maryland, rejected arguments by Human Genome (Nasdaq: HGSI) stakeholder Duane Howell for a temporary restraining order to invalidate the company’s so-called poison pill shareholder rights plan. Mason denied a request for expedited handling of the case, noting that only one shareholder sued.
Mason said he found the law “straightforward and clear” in denying the investor’s bid.
“This is not a case where a number of disgruntled shareholders have come to court up in arms,” the judge said in court.
Howell challenged the defense in his May 25 filing, saying it unfairly entrenches company directors and blocks shareholders from taking GSK’s offer. Lawyers for both sides declined to immediately comment on the ruling.
Earlier this month, Glaxo, which operates its U.S. headquarters in Research Triangle Park, N.C., launched a hostile, $13 per share all-cash bid for Rockville-based Human Genome, its partner on three drugs, including the lupus treatment Benlysta. The companies also have teamed up on experimental medicines for diabetes and hardening of the arteries that are in late-stage testing.
The offer came after the Human Genome board rejected Glaxo’s bid, partly because many of the biotech company’s largest shareholders bought the stock at a higher price than the $13 offer, two people with knowledge of the matter told Bloomberg News in April. The board unanimously said investors should also reject the bid as “inadequate.”
Human Genome’s board also adopted the poison pill, scheduled to last one year to give company executives time to complete a strategic review, officials said.
Such defenses are engineered to make unwanted takeover bids prohibitively expensive by allowing existing shareholders to buy new shares at a discount when the bid is made. That drives up the cost of the acquisition.
Since Human Genome is incorporated in Delaware, Mason must use that state’s law when examining the company’s takeover defense, said James J. Hanks Jr., a Baltimore-based corporate litigator.
A 2011 Delaware Chancery Court ruling upholding Airgas Inc.’s poison-pill defense against a hostile offer will make it hard for disgruntled Human Genome investors to knock out the Maryland company’s defense, Hanks said in a telephone interview yesterday.
“In view of the established Delaware law on the subject, it will be very difficult for plaintiffs to convince the court that the board” acted improperly in erecting the defense, Hanks said.
Since Mason didn’t throw out the defense, investors’ only recourse is to launch a multiyear proxy fight to replace enough Human Genome directors that supported GSK’s bid, attorneys said in a filing.