Risk & Compliance

Alpharma Reaches for a Pill

It aims to fend off hostile King Pharmaceuticals bid with a rights plan.
Stephen TaubSeptember 2, 2008

Specialty drug-maker Alpharma Inc. — faced with an unsolicited $1.4 billion takeover bid from King Pharmaceuticals Inc. — adopted a shareholder rights plan designed to thwart the offer that the target called “inadequate and not in the best interests of Alpharma shareholders.”

The decision to implement the poison pill came in response to King’s Aug. 27 filing with the Federal Trade Commission that it intends to acquire a majority of Alpharma’s common stock and seek clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, according to Alpharma. Its $33-a-share offer was at a 37-percent premium, it said.

Alpharma’s actions are somewhat unusual, given a move away from the poison-pill defense in recent years, although it has appeared to be making something of a comeback in recent months.

“Our board of directors has adopted this short-term shareholder rights plan in order to guard against a potential takeover by King Pharmaceuticals at an inadequate price that is not in the best interests of shareholders,” said Dean Mitchell, Alpharma president and CEO. The board “is committed to enhancing value for and protecting the interests of all of Alpharma’s shareholders and believes there are many avenues to that goal,” he said,” arguing that the poison pill will provide Alpharma time to “enhance the interests of Alpharma’s shareholders.”

The rights plan, he said, is not intended to prevent a takeover of the company “on terms that are fair to and in the best interests of all Alpharma shareholders.”

Under the plan, rights will become exercisable if a person acquires 15 percent or more of the common stock of Alpharma or begins a tender offer that could result in that person owning 15 percent or more of the stock. The plan will not apply to existing shareholders unless they acquire beneficial ownership of additional shares. The one-year plan is set to expire next Sept. 1.

Meanwhile, Alpharma also said it responded to King’s moves by amending the existing change-in-control plan “to preserve for its shareholders the benefits of retaining the company’s recognized business leaders and valuable employees and motivate such employees to remain focused on the operation of the business during a period of some uncertainty.” Under the revisions, a change of control will trigger executives at the vice president or director level receiving bonuses or other cash incentives at 100 percent of his or her annual target rate, with an assumed 100 percent funding of any bonus pool.