Securityholders With Differing Interests in a Statutory Plan of Arrangement
March 30, 2006
A more in-depth article on this issue was published in Co-Counsel: Technology Law Quarterly - Volume 1, Issue 4, on page 50.
In the fall of 2005, British pharmaceutical giant GlaxoSmithKline (GSK) announced its offer to acquire Vancouver-based ID Biomedical Corporation (IDB), a developer and manufacturer of vaccine products (primarily for influenza), via a statutory plan of arrangement.
The arrangement had been put to, and was approved by, 85 per cent of the securityholders of IDB, voting as a single group. But one sub-group of securityholders (holders of common share purchase warrants issued in 2003) opposed the deal, arguing that the amount offered to them was inadequate. Both the common shares and the warrants were traded on the TSX. GSK’s price for the warrants was based on the price offered for the common shares, less the strike price of the warrants. This is the pricing formula that is customarily used to purchase ‘in the money’ options in an acquisition.
The plan of arrangement was then presented to court for approval. The dissident warrantholders argued that they should have been treated as a separate class, and that a financial fairness opinion should have been obtained for their warrants.
In refusing to approve the arrangement, the judge focused heavily on the fact that common shareholders would be receiving a premium, but the amount being offered to the warrantholders represented a discount from the trading price of the warrants on the day before the announcement of the transaction. This, to the judge, demonstrated that the common shareholders and the warrantholders did not have a commonality of interest in voting on the plan.
The parties ultimately settled upon a higher price for the warrants, and the judge then approved the arrangement.
McCarthy Tétrault Notes:
The decision highlights the importance of paying careful attention to the drafting of adjustment and anti-dilution provisions relating to ‘capital reorganizations’ in material agreements governing derivative securities and to the consideration offered to holders of such securities in the context of a plan of arrangement – particularly when the securities are publicly traded. McCarthy Tétrault acted as counsel for IDB in this transaction.
Click here to read a more complete analysis of this decision in the article Acquisition of ID Biomedical Corporation by GlaxoSmithKline on the McCarthy Tétrault website.