Duane Howell believes the shareholder rights plan is not a reasonable response.

An investor in Human Genome Sciences (HGS) has sued the company for enacting a shareholder rights plan, or poison pill, designed to thwart a hostile $2.6 billion takeover by GlaxoSmithKline. In his lawsuit, filed May 25 on behalf of HGS shareholders in the Circuit Court for Montgomery County, investor Duane Howell argued that HGS’s board erred in vesting existing shareholders with the right to snap up additional company shares at a discount in the event of an unsolicited bid for 15% or more of its capital.

The poison-pill, designed to dampen the value of HGSI shares to an outside acquirer, was “not a reasonable response” and “will operate to rob the company and its shareholders of the opportunity to obtain a premium change of control transaction,” Howell’s court filing contended. “These defensive measures are preclusive, and their collective effect serves to impermissibly disenfranchise HGS’ shareholders, stripping them of the opportunity to decide whether or not to accept the GSK Offer or any competing offer.”

Howell requested that the Circuit Court issue a temporary restraining order preventing HGS’ board from enacting the poison pill and other tactics designed to thwart GSK’s offer. The court must act quickly, he argued, because shareholders will be “irreparably harmed” if the poison pill is not rescinded before the June 7 expiration of GSK’s tender offer. Howell also argued that the poison pill held HGS shareholders like himself “hostage to the board” and would prohibit GSK or other potential acquirers from taking offers to purchase the company.

An HGS spokesperson told the Financial Times: “We believe this complaint and motion are without merit. We have acted in the best interests of our shareholders and are confident that we will prevail.” GSK declined comment when contacted by The Washington Post.

GSK took its $13 per share bid directly to HGS shareholders on May 10. Then on May 23, after HGS instituted its poison pill, GSK said it would not proceed unless HGS dropped the poison pill.

In rejecting GSK’s offer, HGS has contended that its business has been undervalued since the offer emerged after HGS shares reached their 52-week low. In addition, HGSI has argued that the lupus drug Benlysta®, which is jointly marketed by the two companies, offers substantial potential for sales growth.

Benlysta finished 2011 with net sales of $52.3 million, reflecting three full quarters on the market. It became the first approved drug for systemic lupus in 56 years. The company finished the first quarter of this year with $31.2 million in net sales.

Yet those numbers lag behind initial analyst projections, accounting for a slump in share price since the drug won FDA approval early last year. In January, at the JP Morgan conference, HGS CEO Thomas Watkins announced plans to cut 150 jobs across departments including R&D.

HGS and GSK are also partners on two late-stage drugs: Albiglutide, which targets diabetes, and Darapladib, designed to treat cardiovascular disease.

To read the story from the Financial Times, click here.
To read the story from The Washington Post, click here.

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