Amylin's "poison put" debt deals were not structured primarily to protect interest and principal payments but to trigger a sudden bulk repayment, according to Professor Michael Roberts of Wharton Business School.
Amylin has $900 million in debt which must be paid immediately if there is a change in control of the board. Such a massive repayment could be financial suicide for the company. The debt is structured that way in order to prevent takeovers by Carl Icahn and Eastbourne Capital, who are currently seeking to put their own slates of directors on the Amylin board because the company's share price has declined so dramatically.
Roberts testified in the Amylin "poison pill" trial, which is going on in Delaware Court of Chancery. Video of the case is being streamed by Courtroom View Network. You can sign up to watch the whole thing here.
In the case, a San Antonio municipal pension fund backed by Eastbourne Capital is seeking to have the poison puts removed so that shareholders can vote for Eastbourne's directors without fear of collapsing the company.
In one exchange, Roberts was asked by the plaintiff's lawyer to describe how Amylin's debt was arranged. Usually, debt investors are concerned with interest and principal repayments (i.e. getting their money back plus a profit). But in Amylin's case, according to this free CVN highlight:
A: ... these particular notes were not necessarily as concerned about protection of the interest and principal payments per se but it appears as if the conversion option was really driving the investment decision.In fact, the first and third "prong" of Amylin's debt were all about triggering sudden repayments, Roberts said:
Q: Are you familiar with the term "poison puts"?
A: I am.
Q: Would any of these put rights be poison puts as you understand the term?
A: I view prongs one and three as prongs commonly found, or referred to as poison puts.
Q: Could you briefly describe what are prongs one and three?
A: Prong one is a trigger defining the acquisition of at least 50 percent of both voting stock by some person or entity. Prong 3 is what I often refer to as the poison put or the change in the majority of the continuing directors.
- See previous coverage of Amylin:
- The War for Amylin: Lilly Not Interested; Icahn Calls the Company a "Dictatorship"
- Amylin CEO Got 11% Pay Rise Despite Losses; Company Paid $355K for Lawyer to Move House
- Amylin Q1: "Icahn Doesn't Know Who Our CEO Is"
- In War for Amylin, Icahn and Eastbourne Win a Battle: "Poison Pill" Revoked
- Amylin Founder Resigns, Suggests Chairman Follow; Icahn and Eastbourne Likely Delighted
- Inside Amylin's Anti-Icahn Suicide Pact
- Amylin Battle Heats Up as Eastbourne Capital Touts Rival Directors' Slate to Icahn's
- Icahn Moves on Amylin; Will Lilly Step Up?
- Behind the Byetta Crisis: Is This Drug Really All That and a Bag of (Fat-Free) Chips?