By Svea Herbst-Bayliss
(Reuters). (Reuters). The Delaware Chancery Court ruled this week that CytoDyn (OTC.) was invalidly controlled by an activist investor. This is a rare rebuke in a court that handles disputes about mergers and governance.
According to the court, the activist group that owns less then 1% CytoDyn stock failed compliance with company’s bylaws. The court also missed key information regarding a conflict-of-interest. The ruling, which was dated October 13, stated that “these omissions, in turns, left their nomination notice fatally incomplete.”
Paul Rosenbaum was the leader of the group. On June 30, the activists wrote to the company about its plans to nominate five directors on the company’s six member board. The board, according to them, allowed for operational failures as well as a steep drop in share prices.
“We believe strongly that the Court’s ruling is fundamentally flawed and, as such, we are evaluating all possible alternatives,” the group said.
The group received a notice from the company rejecting it. It claimed that the letter did not comply with company regulations and contained errors, ranging in standard questionnaires used by nominees to failure to disclose funding to the group.
The company is being represented by law firms Sidley Austin LLP and Potter Anderson & Corroon LLP while the activists are being represented by Greenberg Traurig LLP and Baker Botts LLP.
Following the denial of the nomination from the company, the case was taken to court.
According to the ruling, “The problem with the Plaintiffs is that they responded too fast to critical inquiries contained in the advance notice law.”
The Delaware Court has never been asked to determine if a shareholder submitted a notice failing to comply with company bylaws.
It is estimated that the company’s value is approximately $1 billion. On Thursday, its stock price fell 13.7% to $1.36.
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