Transkaryotic Bloc Plans Boycott

A group of shareholders opposed to Shire's takeover price expect to seek appraisal rights.
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Anyone trying to make a buck off a takeover attempt has less than 24 hours to take action in the proposed $1.6 billion acquisition of

Transkaryotic Therapies


by Britain's

Shire Pharmaceuticals



Shareholders from both companies vote Wednesday on a deal that has been

criticized by some dissident Transkaryotic investors as undervaluing their shares. The chief executive of Transkaryotic quit after his board approved Shire's $37-a-share bid in April, saying the offer was too low.

Even Carl C. Icahn has joined the fray, complaining about the price.

Holders continue to be being pelted with

contrasting opinions about the fairness of the price, and the stock has climbed as high as $37.50. By Tuesday, however, shares had slipped to $36.92.

Although Transkaryotic shareholders like Icahn wouldn't mind seeing the takeover bid fail, they won't lose sleep if Shire wins the prize. That's because they are trying to secure a potentially bigger profit through appraisal rights. This is a tactic used by unhappy investors who try to convince courts that buyout bids are too low. The Transkaryotic-Shire merger proxy offers several pages of instructions on appraisal rights.

Even if the Shire deal is approved at $37 a share, a successful petition for appraisal rights would yield whatever price a court approves. That price could be the same as, more than, or less than $37 a share. And that price is only good for the shareholder-rights petitioner.

Icahn isn't the only investor planning to use this strategy. Holders of at least one-fifth of Transkaryotic's shares will be seeking appraisal rights, according to documents filed with the

Securities and Exchange Commission

. That percentage only represents investors who own 5% or more shares. Smaller shareholders can seek appraisal rights, too.

Seekers of appraisal rights must go through a complicated process whose resolution could take a year or more. In this case, they'll file claims with the Delaware Chancery Court. Although Transkaryotic is based in Cambridge, Mass., it is incorporated in Delaware.

Icahn announced his involvement late last week, filing a notice with the SEC that he had acquired 1.81 million shares, or about 5.1%, of Transkaryotic between July 12 and July 21 and that he planned to seek appraisal rights. All of his purchases were above $37. He can't vote any shares because they were acquired after the June 10 cut-off date set by the merger proxy. That's OK -- one of the rules governing appraisal rights says you can't vote your shares.

A bigger chunk of appraisal-rights shares belongs to a pair of New York investment management firms,

Porter Orlin LLC


Millenco LP

. Both have criticized the $37 buyout bid as too low. Porter Orlin wanted the Transkaryotic shareholders' vote to be postponed. Millenco said its analysis placed Transkaryotic's proper buyout value from the mid-$40s to the mid-$50s.

When the firms filed their objections in two separate reports to the SEC in late June, they owned just under 16% of Transkaryotic. They couldn't vote all of their shares because they had acquired some stock after the merger vote cut-off date. Millenco can vote about 20% of its holdings, and Porter Orlin can vote about 65% of its stake.

They still oppose the deal and have asked Transkaryotic's board to walk away. But they also have decided to vote none of their shares and seek appraisal rights. The firms now own 5.81 million shares, or 16.1% of the company.