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Carl Icahn Plans to Acquire Stake in Hologic; Company Responds with Poison Pill

NEW YORK (GenomeWeb News) – Following notification by a hedge fund headed by Carl Icahn of its intentions to acquire a stake in Hologic, the Bedford, Mass.-based firm today announced it has adopted a stockholder rights plan "intended to ensure that the board remains in the best position to perform its fiduciary duties and to enable all Hologic stockhoders to receive fair and equal treatment."

On Wednesday Icahn Associates filed a document with the US Securities and Exchange Commission revealing its plan to acquire almost $31 million of Hologic's stock. In total, Icahn would own more than 12 percent of Hologic's outstanding shares as part of this action.

The company responded by adopting a one-year stockholder rights plan that essentially gives Hologic shareholders the right to buy the company's stock at a 50 percent discount, while diluting the value of shares owned by the entity whose actions would trigger the rights plan.

Under Hologic's plan, shareholders of record as of the close of business on Dec. 2 will receive one right for each share of Hologic stock held on that date. The rights will not initially be exercisable. If the rights become exercisable, each right will entitle the holder to buy one-thousandth of a share of a new series of preferred stock at an exercise price of $107 per right.

With certain exceptions, the rights will become exercisable only if a person or group buys 10 percent or more of Hologic's shares, or 15 percent in the case of passive institutional investors. Upon the rights become exercisable, each holder of a right will be able to acquire at the exercise price a number of Hologic shares having a then-current market value of twice the exercise price.

Also, if after an entity buys 10 percent or more of Hologic's stock — 15 percent in the case of a passive institutional investor — the firm merges with another business, an acquirer merges into Hologic, or Hologic sells or transfers more than half of its consolidated assets, or earning power, each rights holder will have the power to purchase at the exercise price a number of shares of the person or group whose activity triggers the rights plan. The shares would have a then-current market value of twice the exercise price.

"In all cases, rights held by any person or group whose actions trigger the rights plan would become void and not be exercisable," Hologic said.

The rights plan is a commonly used strategy often referred to as a poison pill that is designed to protect a company from hostile takeovers. Such provisions make a firm's stock less attractive by diluting the shares held by an acquirer.

Illumina implemented a similar poison pill provision after Roche announced its hostile bid for the company nearly two years ago.

In this case, Hologic seeks to ward off any ambitions by Icahn to take control of the firm. Icahn heads Icahn Associates and has developed a reputation as an activist investor and corporate raider. The firms in which he has substantial positions include RJR Nabisco, Marvel Comics, Revlon, and Herbalife.

In a Form SC 13D filed with the SEC today, Icahn said that he believes Hologic is "undervalued" and he intends to "have conversations with members of [Hologic's] management to discuss ways to enhance shareholder value." Icahn added that he "may also discuss the possibility of shareholder board representation."

Hologic said the rights plan, which expires on Nov. 20, 2014, "is designed to allow all Hologic stockholders to realize the long-term value of their investment by reducing the likelihood that any person or group would gain control of Hologic through open market accumulation or other coercive tactics without appropriately compensating the company's stockholders for such control or providing the board sufficient time to make informed judgments."

The company further said that its board "believes the rights plan will preserve the company's ability to implement its strategic initiatives and create long-term value for all stockholders."

Icahn's announcement of his intentions to buy a stake in Hologic comes amid major organizational changes at the firm. During the summer, Rob Cascella was replaced as president and CEO by Jack Cumming, who was Hologic's CEO from 2001 to 2009. A month later, during the firm's second quarter earnings conference call, Cumming laid out short-term goals for Hologic aimed at strengthening its business.

Most recently, Hologic said that revenues in its Fiscal Year 2014 are expected to be down year over year, leading some investment analysts to lower their ratings on the company's stock and to trim their revenue and earnings estimates for FY 2014.

Hologic's shares also saw a one-day drop of 10 percent after announcing the expected FY 2014 revenue decrease, though the stock has since rebounded.

ISI Group's Vijay Kumar today raised his target price on Hologic's stock to $26.50 from $24.50 and said in a research note that he views Icahn's move as "a net positive given his long history of success with enacting change to create value," which, he added, is "much needed at Hologic."

Further, he said that adding Icahn into the picture also increases the chances of either a sale of Hologic or a restructuring at the company "to 100 percent."

He noted that Dec. 5 is "likely" the last day for nominating a director at Hologic's annual meeting expected around March, adding, "This date is crucial as we believe shareholders broadly (we expect others to follow Icahn's lead) are likely to seek seats at the board of directors in order to quicken the pace of strategic change and imbed their preferred outcome to unlock value."