The Delaware Court of Chancery has denied a motion by shareholders of Pennsylvania-based BioClinica Inc. to expedite their lawsuit against the company, holding that the company did not adopt preclusive deal protection measures when it agreed to a $123 million buyout from JLL Partners Inc. The court’s decision means that any trial will not likely start until after the merger’s expected completion date today.
Vice Chancellor Sam Glasscock III issued the 17-page opinion in In re BioClinica Shareholder Litigation. BioClinica’s shareholders filed the lawsuit earlier this month, contending that the Newtown, Pa., biotechnology company’s board undervalued the corporation when it agreed to the buyout from JLL, a New York private equity company.
In their lawsuit, the shareholders allege that BioClinica implemented preclusive deal protection measures, which prevented the board from accepting more lucrative offers from other bidders. Among the deal protection measures challenged by the shareholders include a poison pill, a termination fee and a standstill agreement.
However, Glasscock ruled that the measures did not preclude other offers, so the case did not merit expedition on those grounds. The vice chancellor said the poison pill and other protection measures do not take effect until a bidder acquires 20 percent of the company’s common stock, therefore they are not preclusive because an interested party can still purchase the company through stock.
"Therefore, as in [In re Orchid Cellmark Shareholder Litigation], ‘a sophisticated buyer could navigate [these] shoals if it wanted to make a serious bid,’" Glasscock said. "I find that the plaintiffs have not pled a colorable claim that these deal protection devices, when combined, impermissibly lock up the merger agreement."
Glasscock held that Orchid, a May 2011 Chancery Court decision, was similar to the BioClinica case because in that litigation, the court also refused to preliminarily enjoin a merger that was protected by a no-shop clause, top-up option, matching rights, a termination fee and a poison pill. In fact, Vice Chancellor John W. Noble ruled in Orchid that the poison pill would have a minimal impact on deterring a serious competing bidder.
According to Glasscock, BioClinica’s poison pill would also not impact serious competition. Although the plaintiffs charged that under BioClinica’s Amended and Restated Rights Agreement, the poison pill’s provisions are triggered at the mere announcement of a tender offer, Glasscock held that the mere announcement of a deal cannot trigger the poison pill.
The vice chancellor said that under BioClinica’s Amended and Restated Rights Agreement, any individual can become an "acquiring person" by purchasing 20 percent of the company’s common shares. If no individual opts to acquire 20 percent of BioClinica’s common shares, he or she may purchase preferred stock at the price of $16 for 1/1000 of a preferred share, which is the equivalent of one common share. Therefore, Glasscock said, the poison pill would not go into effect unless an individual pays $16 for the equivalent of one common share, which is valued at $7.25 per share.
"Contrary to the plaintiff’s representations, the only ‘right’ exercisable upon the announcement of a tender offer is a stockholder’s option to purchase stock worth $7.25 for the price of $16," Glasscock said. "Obviously, no rational stockholder would make such a purchase. As a result, the fears typically associated with triggering a poison pill — the substantial dilution of the bidder’s ownership in a target resulting in a much more expensive acquisition — are not triggered by a public announcement of a tender offer under the rights plan."
The plaintiffs also made several inadequate disclosure claims against BioClinica, alleging that the 14D-9 failed to disclose the company’s projected financial performance and free cash flows for 2016 and did not explain why BioClinica’s 2013 capital expenditures were revised upward in the midst of the sales process. However, Glasscock ruled that neither of these claims were colorable to justify expediting the plaintiffs’ lawsuit.
Glasscock ruled that BioClinica’s management did not fail to disclose this information because they did not have the information, nor did they prepare the 14D-9. Instead, the Securities and Exchange Commission filing was prepared by the company’s financial adviser, Excel Partners, therefore they did not have the information to disclose.
"Nowhere does the 14D-9 state that the ‘projected free cash flows of BioClinica for 2013-16,’ or other financial projections for 2016, were prepared and provided by management, rather than Excel," he said. "Furthermore, the defendants have represented that BioClinica did not create any such projections. Because the plaintiffs cannot produce any factual support for their claim concerning undisclosed management projections, I conclude their claim is not colorable."
The plaintiffs were represented by Seth D. Rigrodsky and Brian D. Long of Rigrodsky & Long; R. Bruce McNew of Taylor & McNew; Lionel Z. Glancy, Michael Goldberg and Louis Boyarsky of Glancy Binkow & Goldberg; Henry Young of Henry Young Law; Randall J. Baron, A. Rick Atwood Jr. and David T. Wissbroecker of Robbins Geller Rudman & Dowd; and Richard A. Maniskas of Ryan and Maniskas.
Rigrodsky did not return calls seeking comment.
The defendants were represented by Gregory V. Varallo, Rudolf Koch and Robert Burns of Richards, Layton & Finger, and Marc J. Sonnenfeld, Elizabeth Hoop Fay and Karen Pieslak Pohlmann of Morgan, Lewis & Bockius.
Varallo did not return calls seeking comment.
This article first appeared in Delaware Business Court Insider, a Legal sibling publication.