Ariz. takeover shield challenged

Drug giant seeks feds' help in bid for Tucson firm
2007-07-04T00:00:00Z 2014-06-17T17:44:58Z Ariz. takeover shield challengedBy Howard Fischer Capitol Media Services Arizona Daily Star

PHOENIX — An international drug maker is challenging a 20-year-old Arizona law that could delay — and potentially block — its $3 billion takeover of Oro Valley-based Ventana Medical Systems Inc.

In legal papers filed here, Swiss-based Roche Holding AG is asking a federal judge to void the law, which restricts the ability of those who purchase shares in a hostile bid to actually vote them.

Attorneys for the company contend that runs afoul of federal constitutional provisions that say states cannot interfere with interstate commerce.

The move, if successful, would affect not only Roche in its bid for Ventana Medical Systems Inc. If the law is declared unconstitutional, other Arizona corporations relying on the protection of state law also would be subject to similar hostile takeovers.

Attorneys for Roche said similar laws from other states have been struck down.

The lawsuit in federal court here is just one of two filed by Roche in its effort to buy Ventana one share at a time. That comes after Roche concluded Ventana's board and management have been unresponsive to an outright purchase.

Ventana, founded by University of Arizona pathologist Dr. Thomas Grogan in 1985, is a leading maker of automated laboratory instruments for tissue analysis.

In a separate court filing in Delaware, where Ventana is legally incorporated, Roche is challenging a provision in the company's bylaws that lets existing shareholders buy more shares at half price if an outsider buys up at least 20 percent of the shares of the company. That effectively serves as a "poison pill" by diluting the value of shares obtained by the outsider — in this case, Roche.

Brooke Morganstein, a spokesperson for Ventana, would not comment on the lawsuits.

The 1987 Arizona law was enacted at the behest of what was then the Greyhound Corp., which contended it was the subject of a hostile takeover.

The law does not prohibit outsiders from making "tender offers" to purchase shares from current shareholders. That is what Roche is doing, offering $75 a share, a figure the drug maker said represents a 55 percent bonus over the average price of Ventana stock for the prior three months.

But the law allows them to use that voting strength only with approval of the majority of the other shareholders.

In essence, that would mean even if Roche acquired more than half the outstanding shares of Ventana it would not control the company. And that limit on its ability to vote its shares would continue for three years.

Attorneys for Roche said the U.S. Supreme Court has upheld an Indiana law designed to protect corporations there from hostile takeover. But that law applied solely to companies incorporated in that state.

Ventana, while having its offices in Arizona, is incorporated in Delaware. That is not unusual: Many Arizona-based companies have chosen to incorporate in other states because of what they see as favorable corporate laws there.

The Arizona law, however, allows a corporation to take advantage of the shield even if it is not incorporated here. Instead it need have only its principal office in Arizona, control property here with a fair market value of at least $1 million, and have more than 500 employees in the state.

Attorneys for Roche said other Supreme Court rulings have overturned state laws that offer similar protections to companies not actually incorporated in that state.

"The courts have reasoned that the extraterritorial reach of such anti-takeover statutes creates an impermissible risk of inconsistent regulation and imposes substantial burdens on interstate commerce that outweigh their putative local benefits," the Roche attorneys argued.

The Delaware lawsuit charges that Ventana's board has breached its fiduciary duty by refusing to eliminate the "poison pill" by redeeming the rights of existing shareholders to buy additional shares at half price, or by repealing it entirely.

The failure to do that, the Roche lawyers argued, "has no economic justification, serves no legitimate purpose, and is not a reasonable response to Roche's proposal." And the Delaware lawsuit says Roche's efforts "pose no threat to the interests of Ventana's stockholders or to Ventana's corporate policy and effectiveness."

Ventana, headquartered at 1910 E. Innovation Park Drive, ranks 90th on the Star 200 list of Southern Arizona's major employers, with 580 full-time-equivalent local workers at the end of 2006.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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