(Reuters) – The Delaware Chancery Court this week ruled that an activist investor’s attempt to seize control of biotechnology firm CytoDyn (OTC:CYDY)’s board is invalid, marking a rare rebuke from a court that hears disputes over mergers and governance matters.
The court ruled that the activist group, which owns less than 1% of CytoDyn’s stock, failed to comply with the company’s bylaws and left out key information on a conflict of interest. “These omissions, in turn, left their Nomination Notice fatally incomplete,” the ruling, dated October 13, said.
The activist group, led by Paul Rosenbaum, wrote to the company, which is working on coronavirus treatments, on June 30 to say it planned to nominate five directors to the company’s six-member board. They say the board enabled operational failures and presided over a sharp share price drop.
“We believe strongly that the Court’s ruling is fundamentally flawed and, as such, we are evaluating all possible alternatives,” the group said.
The company rejected the group’s notice letter, saying it failed to comply with company bylaws and was riddled with errors ranging from mistakes in the nominees’ standard questionnaires to failing to properly disclose the group’s funding.
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.
After the company rejected the nomination, the matter moved to the courts.
“Where the Plaintiffs ultimately went wrong here is by playing fast and loose with their responses to key inquiries embedded in the advance notice bylaw, the ruling said.
This is the first time a Delaware court has been asked to rule on a shareholder submitting a notice that failed to supply information mandated by the company’s bylaws.
The company is valued at roughly $1 billion and its stock price dropped 13.7% to $1.36 on Thursday.