Northwest’s Plan to Deter Takeover Bid Challenged by Davis
Los Angeles billionaire Marvin Davis today filed a complaint against NWA Inc., parent of Northwest Airlines, challenging adoption of a “poison pill” shareholder rights plan by NWA’s directors.
Davis, who has offered to buy the airline for $2.62 billion, or $90 a share, planned a proxy fight to win control of the airline’s board at NWA’s May 15 shareholders meeting.
Davis concurrently filed a motion seeking an order to temporarily restrain distribution of the rights under the poison pill plan. Such distribution is scheduled to occur April 25. No hearing date has been set.
The complaints were filed in Delaware Court of Chancery, according to a statement from Davis’ office in Los Angeles. Northwest, based in Eagan, Minn., is incorporated in Delaware.
Davis’ complaint asserts that the rights plan, “particularly the provision barring redemption of the rights by a newly elected board under certain circumstances, would improperly interfere with the solicitation of proxies that Davis expects to conduct in connection with the meeting of shareholders scheduled to be held on May 15.”
The NWA board of directors last Friday rejected Davis’ offer, saying it was financially inadequate. The board also reaffirmed its intention to keep the nation’s fourth-largest airline as an independent entity.
Davis, who first made his offer March 30 and has said he owns 3% of Northwest stock, said he will continue to aggressively pursue his takeover attempt. Davis insists that the bid, which is set to expire April 21, is friendly and that he would not sell off parts of the company.
Shortly before Davis made his offer, Northwest announced that a separate group of investors was interested in buying NWA. The identity of that group, which owns 4.9% of the stock, has not been disclosed.
On March 27, Northwest’s board of directors set up an anti-takeover defense that it said would make the company less attractive to a hostile suitor intending to break up the company.
Poison Pill Plan
Under the poison pill plan, shareholders will have the chance to buy 1/100th of a share of a new series of preferred stock for $225 when a person or group acquires 15% of common stock or announces a tender offer that would result in ownership of 15% or more of the voting power.
The initial takeover price for a hostile suitor would not increase because of the new stock, but the acquiring person or group would not be able to reap benefits from the sale of assets following the takeover, a Northwest spokesman said then.
Under the poison pill, the new owners would have to distribute income from the sale of assets to holders of the preferred stock.