But it's still not altogether clear whether a prospective muncher might not feel they were pushing the envelope if they were to acquire the converts ahead of any filing.
Agreed it's "not altogether clear", but if someone was considering a run at VPHM and this issue arose, the next question for the muncher's lawyers would be, how do we get a ruling on this, or some sort of greater clarity than the unanswered questions you lawyers have raised.
And the only way to get a court to rule on it, consistent with the quiet acquisition of enough convertibles to make a difference, might be to "push the envelope": to charge ahead, buy the convertibles, act like there isn't a filing requirement, and wait to see if (when) the target sued in US District Court for an injunction.
In the sharp-elbowed arena of hostile takeovers, I'm sure the potential hostile muncher would consider this option, and would decide largely on the basis of the downside legal risk -- what are the worst sort of remedies the court might order?
My guess, based on 10+ years-old knowledge and a quick glance at Loss and Seligman, is that the court would probably do no worse than temporarily enjoin further purchases, and "sterilize" the stock and convertibles owned by the muncher, but only until the filing was made, perhaps plus ten days. (That was the remedy in the one case sort of like this I was involved in, Carl Icahn's run at Marshall Field in 1982. Marshall Field sued, and Skadden Arps persuaded the court that the description of the munchers' intentions in the 13D's (not drafted by us) had been inaccurate in some minor respects. The court enjoined the Icahn group's offer -- but only until corrected 13D's were filed, as they were within days. This sort of remedy was shaped in substantial measure by the Federal courts' very strong desire not to be in the middle, and to leave the market for corporate control to the marketplace, not the courts. [The great fun for this then-junior lawyer was watching Carl Icahn fence, in about 15 hours of deposition, with one of Skadden's senior litigators.])
Of course, the lawyers advising a muncher would have fuller and current knowledge of the state of the law on such remedies than my speculations here.
But on reflection it's hardly clear to me that the case would get near the remedy stage, since I doubt a case can be made for a violation of the judge-made rules about "creeping tender offers". Recall, as I posted earlier, that those rules are judicial extrapolations from Sections 13 and 14d of the Exchange Act, statutes that refer to "equity" alone, not debt.
It would be a pretty long stretch, IMO, to extend that doctrine to the convertibles. The argument would have to be that the convertibles -- convertible at 109.15 [36 times the current price below $3.00/share] -- are in effect "equity".
I think a practical Federal judge, in the middle of a suit by a desperate target, would take the convertibles as debt for all intents and purposes.
It would be different if some SEC rule required such disclosure, like the proxy rule you cite, but I don't think a judge is very likely to think the convertibles have any meaningful component of equity.
But of course all this speculation may be wholly idle, since the conventional wisdom is probably right that hostile takeovers are unlikely to work for biotechs, where a large share of the target's value is in the scientists who are likely to walk if some heavy-booted acquirer charges in. This alone might well prevent a prospective muncher from "going hostile". |
