Perry’s No-Risk Play at Mylan (p.198)
Starting point Ending point
Sells call Buys call
to broker from Perry
Buys put from Sells put to
X Mylan Share X Mylan Share
Perry/Mylan – Resolution
Hedge-Fund Firm to Pay Disclosure Fine
Wall Street Journal (July 21, 2009)
A New York-based hedge-fund operator will pay $150,000 to settle securities-
law violations with the Securities and Exchange Commission for failing to
report it had bought nearly 10% voting rights of Mylan Inc.
The issue of using swaps and other derivatives to gain voting power at a
companies has been gaining increased prominence, with some on Capitol Hill
calling for the commission to clarify swaps treatment and tougher penalties for
Perry Corp., which didn't admit or deny the agency's findings, called the
settlement "a satisfactory conclusion." The case stemmed from the company
using "merger arbitrage" as it looked to profit from Mylan's attempted
acquisition of King Pharmaceutical Inc. That deal fell apart in early 2005 as
King restated several years of results.
To increase its voting power, Perry -- which owned King shares for several
years before the takeover deal was announced in July 2004 -- separately
purchased Mylan voting shares and entered into a series of "swap"
Classic § 160(c) problem
General Public Management
Round and Round
Public 45% Follow, Inc.
Speiser v. Baker: The Scheme
50% of common, 45% of the vote + director
Public Speiser Baker
40% 10% 8% as Speiser
Health Chem preferred stock,
carrying 9% of
(operating company) the vote
and 95% of the
Speiser v. Baker: The Fall-Out
Speiser seeks to compel ASM of Health Med under
DGCL § 211(c); Baker has frustrated quorum
requirements by not attending.
Baker states that at the ASM Speiser will remove Baker
as a director of Health Med by voting the shares of
Medallion (that Speiser controls), in violation of
Speiser’s fiduciary duty to Health Med’s shareholders.
Baker counterclaims that Chem’s shares held by Health
Med should not be votable under § 160(c).
Chancellor Allen grants Speiser’s § 211(c) claim
requiring Health Med to holds its ASM, but treats
Baker’s § 160(c) counterclaim as a separate issue.
-- BA Columbia 1961, MBA Harvard 1963
-- CEO of Texas International Airlines, 1971
-- Acquired Continental, New York Air,
Frontier Airlines, and Eastern Airlines in
-- Only person to bankrupt two airlines
(Eastern & Continental)
-- Attempted to start Friendship Airlines in
1993, but U.S. DOT refused him permission
“One of the most notorious players in the history of commercial aviation
in the United States. . . . By the mid-1980s, he had acquired a
reputation for vicious business practices that were particularly unfair to
the labor force. By filing for bankruptcy at different points in his career,
he was able to bypass unionized labor and impose harsh working
conditions on the employees of his various corporations.” – U.S.
Centennial of Flight Commission
Schreiber v. Carney
Jet Capital Corp. (JCC)
35% stake (effective veto power)
International (TI) Proposed Merger Air (TA)
• JCC threatens to block merger unless it can exercise warrants;
TI wants to loan the funds so that JCC can exercise.
• Special TI committee of three independent directors hires
independent counsel and bankers and concludes that the loan
• TI board and independent shareholders approve the deal.
• TI shareholder challenges the transaction as vote-buying and
Controlling Minority Structures
• Dual class equity structures.
– high vote & low vote stock.
– Controller owns 51% of A, which owns
51% of B, which owns 51% of C. What is
Controller’s economic stake in C?
• Cross ownership
Example: Mediobanca’s Control in Italy
Source: Fernando Napolitano, VP of Booz-Allen Hamilton Italia, published in Telecom Italia (HBS
Dual-Class Structures: U.S. Chronology
Bad old days: NYSE requires one-share, one-vote (no dual class
Mid 1980s: companies start to demand dual class structures as a
takeover defense, and NASDAQ allowed it, so NYSE forced to
allow as well.
Late 1980s: SEC becomes alarmed and passes Rule 19c-4, which
prohibited dual class recaps but allows low-vote new issues.
1990: Empire Strikes Back – Business Roundtable gets 19c-4
overturned in D.C. Circuit, on grounds that SEC lacked statutory
power. Dual class recaps come back, but no one cared –
takeovers were down, and other defensive measures (e.g., poison
pill) were just as good.
1995: NYSE, Amex, and NASDAQ adopt a uniform voluntary rule
that basically re-adopts 19c-4, prohibiting dual class recaps but
allowing low-vote new issues.