M & A Roundup: Nabisco Counters Icahn With a Pill

As soon as financier Carl Icahn started making noises at Nabisco Group Holdings Corp. in early March, the company rushed in a multi-pronged poison pill clearly aimed checkmating the legendary corporate invader. Although the pill hasn’t deterred Icahn from getting louder and stepping up the pressure, it remained firmly in place during the tumultuous dueling that continued well into April. The shareholder rights plan has a very low threshold and closes off all hostile channels. It is a combination flip-in/flip-over pill that kicks in when anyone buys a stake of 10% or more in the company, launches a tender offer for 10% or more, or acquires control in a hostile deal. Not coincidentally, Icahn launched his attack with a 9.5% base, which left him little wiggle room. But undeterred, he later announced plans to tender for a 40% stake and in early April unveiled a conditioned bid for the Group at $16 a share, or $4.7 billion. The pill remained a protectant while Nabisco Group responded by saying that it will consider selling itself as well as its prime asset, an 80.6% interest in food maker Nabisco Holdings Corp., and even invited a formal bid from Icahn. Like most pills, Nabisco’s initially offers common shareholders a shot at buying stock at a prohibitive price – in this case $30 for one-hundredth of a share of a new participating preferred stock. But if the 10% threshold is breached, the Nabisco holder can buy common stock at a reduced price. The flip-over provision is triggered if Nabisco changes hands in an unfriendly transaction, when the holder can buy into the acquirer at a discounted price. The Nabisco case was one of several in early 2000 in which company directors have voted in pills at the first signs of trouble or major changes that could lead to takeover vulnerability. Shared Medical Systems Corp., a computer services firm for the health care industry, erected its rights defense during a brief but bitter conflict touched off by a hostile bid from much smaller Eclipsys Corp. The battle ended abruptly when Eclipsys itself agreed to be acquired by Neoforma.com Inc. But it remained in place while Shared Medical, with the assistance of Goldman, Sachs, reviewed strategic alternatives. Arch Coal adopted a pill when its controlling shareholder, Ashland Inc., gave Arch complete independence by spinning off its interest to its shareholders. Meanwhile two spin-offs went into public ownership with pills in their capital structures – Edwards Lifesciences, cut loose by Baxter International, and Energizer Holdings, which departed the corporate fold of Ralston Purina. Other companies installing pills in March included: Advanced Technical Products, Alanco Technologies, Allegheny Energy, Atchison Casting, AutoZone, Capital Senior Living, Callon Petroleum, Lear Corp., NiSource, OfficeMax, EOG Resources, Quaker Chemical, and Quanta Services.