The Pill Comes Between Old Friends

Takeover defense engineering etched a new level of complexity in a strange but short-lived battle that pitted two onetime friends against each other. It involved creation of a poison pill that clearly seemed stacked against an unfavored bidder who in turn mounted a potentially significant challenge against the anti-takeover weapon in the Delaware Court of Chancery. The contest appeared to be on hold by the close of February when Creo Inc., a Vancouver-based maker of printing products, suddenly dropped its bid to buy Printcafe Software Inc., a Pittsburgh-based producer of software for the printing industry. An attempt to checkmate Creo, which owned about 45% of Printcafe by late in the month, was the objective of the pill. The games began in January when Creo, a longtime ally that then owned 30% of Printcafe, privately agreed to buy blocks of shares from two other large holders that would enlarge its stake to 55%, and offered $1.30 a share for the remaining stock. The offer was described as an 11% premium over the market price, which had plummeted from Printcafe’s $10 a share IPO price tag in June 2002. Shortly after, Electronics for Imaging, based in Foster City, Calif., jumped into the pool with a $2.60 a share offer, exactly double the Creo bid. Printcafe, while setting up a special committee to weigh the competing offers, took actions that seemingly smiled on the Electronics for Imaging bid, including a breakup fee and a uniquely constructed pill. Generically, the pill would kick in if an unwanted bidder bought a 15% slice, but other features specifically froze an existing holder like Creo. The Canadian firm was grandfathered to hold its existing stake but it would trigger the pill if it enlarged its holdings or simply agreed to buy additional stock. And if Creo got to 75%, Printcafe directors could distribute additional stock – one share per right – to public holders. Creo sued in Delaware, accusing Printcafe of “draconian” tactics, and raised its bid to $3 a share. But the court turned down Creo’s bid for a temporary restraining order against the pill and the Canadian firm dropped its bid in late February, presumably leaving a clear field for Electronics for Imaging. Printcafe stock was trading at around $2.50 a share in early March. Other firms installing shareholders rights plans in February included: Alkermes Inc.; Broadway Financial Corp.; Comarco Inc.; Compex Technologies Inc.; Discovery Partners International Inc.; Questor Pharmaceuticals Inc.; S.Y. Bancorp; Sanchez Computer Associates Inc.; TheraSense Inc., and Vitesse Semiconductor Corp. Copyright 2003 Thomson Media Inc. All Rights Reserved. (http://www.thomsonmedia.com)