Applied Opposes "Poison Pill" Proposal : Company seeks "no" vote on rights plan amendment

Electronic News, March 22, 1999 by Jeff Dorsch

Santa Clara, Calif.-Applied Materials Inc. is vigorously opposing an amendment to its corporate bylaws that would require shareholder approval for any changes in its shareholder rights plan, especially pertaining to the "poison pill" defense incorporated in the rights plan. The proposal, put forward by an institutional investor, is scheduled to be voted upon by Applied shareholders at next week's annual meeting.

"Poison pill" defenses, which make it difficult for a hostile takeover to be accomplished usually by issuing more shares of common stock than the hostile acquirer could afford to purchase, are in the news in Silicon Valley these days, thanks to Royal Philips Electronics' unsolicited tender offer for VLSI Technology Inc. (EN, March 1). The board of VLSI recently tightened up its poison pill defense in reaction to the tender offer (EN, March 15). VLSI's board is scheduled to meet this week to receive a formal evaluation of the Philips offer and to consider its alternatives. Philips is poised to stage a full- blown proxy fight if the VLSI board rejects the offer.

Applied is conducting a full-court press against item number three in its 1999 proxy statement, with letters opposing the measure going out to shareholders with the standard proxy materials. Applied employees who own shares in the company have received a voice mail from Joseph Bronson, the company's chief financial officer, urging them to vote "no" on item number three.

Item number three, proposed by the State of Wisconsin Investment Board (SWIB)-an Applied shareholder with nearly 1 million shares of common stock-seems fairly mild in its aims. But the proposal would make for a dramatic shift in corporate governance, putting more power in the hands of shareholders and less in the hands of the board of directors. The Applied board, perhaps understandably so, is unanimously opposed to the proposal.

The proposal not only calls for shareholder approval of any changes in the shareholder rights plan - it also advocates allowing holders of 10 percent of the shares outstanding to call a special meeting of the shareholders to repeal any changes in the rights plan approved by the board but not by a majority of the shareholders.

"If the shareholder rights plan ('poison pill') is not designed properly, the poison pill may be used to block offers that are in the best interests of the shareholders. Therefore, adoption or renewal of the poison pill should be conditioned on shareholder approval. Further, shareholders should have the opportunity to vote periodically on the continuation of the poison pill," the SWIB says in the Applied proxy statement.

Applied's current shareholder rights plan, adopted in 1989, currently is due to expire in June. SWIB contends the current plan is "not designed properly," and any renewal or amendment of the plan should be left to the shareholders, not the board.

Applied's board and management contend this proposal would reduce the flexibility the board would have in dealing with a potential acquirer, or to develop alternatives to maximize shareholder value.

In opposing the shareholder proposal, Applied says in its proxy statement, "The proposed bylaw would significantly limit the board's ability to negotiate effectively with a potential hostile acquirer and to preserve and maximize value for all stockholders. This proposal, for example, would restrict the company's flexibility in responding to acquisition offers - friendly and hostile alike - by preventing the board from quickly and unilaterally extending the current stockholder rights plan...or adopting a new rights plan." n