A federal judge issued a temporary restraining order Thursday blocking a plan by Richardson-Vicks to issue a new class of preferred stock in its effort to avoid a takeover by Unilever NV.
“I have considered that, as a matter of law, the proposed stock dividend is an impermissible step,” U.S. District Judge Richard Owen told lawyers for the two sides.
The judge said issuance of the preferred shares, which would carry multiple voting rights that would be suspended if the shares are sold, requires stockholder approval or an amendment to the Richardson-Vicks corporate charter.
The company’s board of directors approved the stock issuance Tuesday without submitting the plan to the shareholders.
Vaughn Williams, a lawyer for Richardson-Vicks, said the company will try next Thursday to persuade Owen to change his mind at a hearing in which the judge will decide whether to extend the restraining order by issuing an injunction.
“We believe the judge’s decision incorrectly reflects Delaware law,” Williams said. “We believe it’s wrong.”
Because Richardson-Vicks is incorporated in Delaware, the New York federal court applied the law of that state in determining whether the company’s directors have the power to issue the preferred stock without shareholder consent.
Williams said the timing of next week’s hearing means that the stock plan could still go forward on its original schedule despite Thursday’s setback.
Headquartered in Wilton, Conn., Richardson-Vicks is best known for its Vicks line of cold and cough remedies. Unilever is a giant British-Dutch consumer-products concern and is seeking to acquire Richardson-Vicks through an American subsidiary.
Richardson-Vicks had said before the battle that members of the Richardson family, which opposes the takeover, controlled about 7.3 million of its 23.4 million shares.
The court battle began Monday when Unilever asked Owen to block the Richardson family and the company from buying the company’s shares. Unilever charged that the company had issued misleading public statements describing the purchases as an investment rather than a move to avoid a takeover.
On Wednesday, a 23-member group of Richardson family stockholders told the Securities and Exchange Commission that they had bought an additional 170,000 shares.
Also on Wednesday, the company disclosed to the SEC that it had purchased 2.6 million shares of its stock for $121 million. The company had earlier said it was prepared to buy back as many as 5 million shares to defend itself.
On Tuesday, Williams told Owens that the repurchases had been completed and that no further repurchases were planned. But while that hearing was going on, the company was elsewhere announcing its plan to issue the preferred shares.
Each owner of five Richardson-Vicks common shares would receive one new preferred share under the plan Owen rejected.
Each preferred share, in turn, would be convertible into five new common shares, but each of those new common shares would be entitled to five votes. Thus, the holder of one share of new preferred would be entitled to 25 votes for that share, plus five for his original five shares of common.
Those special voting rights would be suspended for three years, however, if the preferred shares are sold to anyone besides the stockholder of record on Sept. 27, to whom they will be issued.
The buyer will have only five votes, rather than 25. Since federal securities regulations prevent Unilever from buying any shares under its tender offer until after Sept. 27, Unilever charged that the plan was clearly aimed at making its takeover difficult if not impossible to pursue by giving the non-selling Richardsons greater voting powers.
Unilever initially offered $54 a share for all Richardson-Vicks common on condition that at least 51% of the shares are tendered.
But earlier this week, Unilever launched a tender offer for Richardson-Vicks stock, saying it would pay $56 a share, if the board consents to a friendly takeover, but only $48 a share if the board resists the merger.