Sanofi S.A. (NYSE: SNY) wants Medivation Inc. (NASDAQ: MDVN) and it is going to extreme lengths to get it. Usually the term “hostile takeover” is an exaggeration, but in this case Sanofi’s $9.3 billion takeover bid actually looks pretty hostile, given that it is now trying to oust the entire Medivation board of directors and stack it with their own allies by appealing directly to Medivation shareholders.
Meanwhile, Medivation’s market cap has already exceeded Sanofi’s offer by over $700 million, giving shareholders more incentive to say no and keep the board as is. What is not being reported though is that Medivation has a trump card, a “poison pill” that it refers to in its own filings in the event of a hostile takeover bid such as this, and it does not look good for shareholders. According to Medivation’s own filings, (emphasis added, see page 43):
Our board of directors has also adopted a stockholder rights plan, or “poison pill,” which would significantly dilute the ownership of a hostile acquirer. Additionally, provisions of our amended and restated certificate of incorporation and bylaws could deter, delay or prevent a third party from acquiring us, even if doing so would benefit our stockholders, including without limitation, the authority of the board of directors to issue, without stockholder approval, preferred stock with such terms as the board of directors may determine.
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The poison pill seems to be a clause that allows the board, before any ouster by a hostile entity and without any stockholder approval, to severely dilute the holdings of all of its shareholders so as to survive the bid. There is no mention of this poison pill in Medivation’s letter to shareholders issued on May 25, nor in the press release about the letter.
Meanwhile, Medivation is now appealing to the U.S. Securities and Exchange Commission to close the loophole that allows Sanofi to appeal directly to Medivation shareholders without holding a shareholder meeting. This will be done by submitting consent revocation papers before Sanofi can complete its own filing to replace Medivation’s board.
If that does not succeed, then if shareholders do vote to replace the board so as to take up Sanofi’s offer, then Medivation could end up biting its self-described poison pill and dilute away with preferred stock. Yet another reason for Medivation shareholders to reject Sanofi’s advances, if the existing board is intent on biting the poison pill.
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