Thursday, February 4, 2010

Kill the pill?

Billionaire investor Ron Burkle wants to kill a pill – or at least diffuse it. I’m talking about a poison pill put in place by Barnes & Noble last November limiting an outside shareholder to a 20% stake or else face a watering down of his position by the issuance of cheap stock to other shareholders.

Euphemistically called a shareholder rights plan, poison pills have fallen out of favor in recent years as this hostile takeover defense is in place in only about ½ as many U.S. publically traded companies as ten years ago. (Many investors would like to see any and all offers come a company’s way.) However, the board of Barnes & Noble passed the provision after Burkle announced that he held about 18% of the company through his investment vehicle Yucaipa. Mr. Burkle also raised questions about the propriety of the company acquiring Barnes & Noble College Booksellers from Leonard Riggio, Barnes & Noble’s founder and Chairman.

And why, asks Burkle, does the pill not apply to the Riggio family should they happen to acquire even more shares? (Leonard Riggio and his family currently own about 35% of the company.)

Meanwhile a case between Versata Enterprises and Selecta involving the unprecedented triggering of a poison pill is slowly working its way through the Delaware Chancery Court. (Until Selecta/Versata the poison pill had only served as a nuclear deterrent, but never had exploded.) While poison pills have been blessed by Delaware courts, the Selecta pill (designed to preserve a net operating loss) may have been trumped up using questionable rationale. Burkle could be hoping this case provides an opening that helps defuse the Barnes and Noble bomb.