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Sinovac Biotech activates 'poison pill' defense in rare move

By Liana B. Baker

Feb 22 (Reuters) - Sinovac Biotech Ltd, a Nasdaq-listed Chinese vaccine developer, activated a shareholders rights plan on Friday, according to a press release seen by Reuters, the first time a company has used a "poison pill" takeover defense in more than a decade.

Sinovac is seeking to defend itself against a group of shareholders, including investment firms 1Globe Capital LLC, Chiangjia Li and OrbiMed Advisors LLC, which own 40 percent of the company. They have sought to take over the company's board along with a Chinese subsidiary of Sinovac.

While companies occasionally threaten to use poison pill defenses, they rarely proceed. Sinovac's decision will result in the issuance of 28 million new shares that will collectively dilute the investment firms' holdings to about 25 percent of the company's voting stock.

In the press release, which has not yet been made public, Sinovac said its board determined that 1Globe Capital, Chiangjia Li and OrbiMed Advisors met the triggering threshold of the poison pill because they own more than 15 percent combined of stock and conspired to take over the company's board ahead of a February 2018 shareholder meeting.

The dissident shareholders can decide to challenge the board's decision in Antigua, where Sinovac is incorporated, or in Delaware, which governs shareholder rights contracts.

1Globe Capital LLC, Chiangjia Li and OrbiMed Advisors could not be reached for comment.

Sinovac said in December a court in Antigua had rejected 1Globe Capital's claim that its slate of nominees had been elected to Sinovac's board in February 2018.

Under the plan, Sinovac shareholders can exchange one share for 0.655 of common shares plus 0.345 of a newly created preferred share class that will not trade on a stock exchange. Holders of the new share class, will receive a 41-cent per share dividend until the new share class issued is able to trade on the public market.

Shareholders "should expect the share price to adjust downwards," the company said, since Sinovac is issuing a significant amount of new shares and will have a higher share count, going from 71.1 million in shares to 98.9 million.

Nasdaq advised Sinovac that it will halt trading for about two weeks to give it time to work out its plan. Sinovac will put its newly issued shares into a trust for shareholders who will need to follow instructions to get their new shares, including obtaining a certificate to show they are not part of the dissident shareholders.

The last time a company activated a poison pill defense was in 2008, when software firm Selectica Inc did so. That move, however, was related to preserving a tax benefit.

Sinovac, based in Beijing, makes vaccines against infectious diseases such as the flu, mumps and hepatitis and has a market value of close to $400 million. (Reporting by Liana B. Baker in New York; Editing by Leslie Adler and Tom Brown)