‘Virgin’ North Dakota Draws Billionaire Icahn in Raider Quest

North Dakota, known for blizzards and badlands, may one day become a home for corporate America, should billionaire Carl Icahn get his way.

The state has adopted a law, drafted by an attorney hired by Icahn and other investors, that lets shareholders more easily gain control of any company incorporated there. The law strips away anti-takeover measures, pays individuals for the cost of successful proxy battles, and allows investors to vote “on an advisory basis” on executive pay.

Icahn has proposed that Amylin Pharmaceuticals Inc. and Biogen Idec Inc., companies he’s engaged with in proxy battles, become only the third and fourth publicly traded companies incorporated in North Dakota. While the billionaire investor can’t force such a move, he can push for a shareholder vote that may send trustees to the bargaining table, said Larry Hamermesh, a law professor at Widener University in Wilmington, Delaware.

“The real goal is not to move to North Dakota, but encourage negotiation about enhancements of shareholder rules,” Hamermesh said. North Dakota, hoping for a tax benefit from the new law, gets nothing in the meantime, he said.

The legislation was passed in 2007, and since then no company has been incorporated under the law, said Al Jaeger, North Dakota’s Secretary of State, in a telephone interview.

“We were kind of virgins” when the law was drafted, Jaeger said. “We didn’t have a complicated law in place at the time, or a lot of companies that this might impact.”

Like-Minded Investors

The legislation came into being after Icahn rounded up a group of like-minded investors, including New York-based hedge funds Jana Partners LLC and Steel Partners II LP, and hired Philadelphia attorney William H. Clark Jr. to draft a bill, Clark said. The group pitched the law to Vermont, where it died in a legislative committee, before taking it to North Dakota.

The group then hired a North Dakota lobbyist, Joel Gilbertson of the Vogel Law firm, who found the sponsors. Among them was Duane DeKrey, a Republican state representative from Pettibone. While lawmakers didn’t expect a flood of companies would move to the state, they did hope North Dakota would get some money from approval of the legislation, he said.

“If no one ever used” the law, “it didn’t cost us anything,” DeKrey said in a telephone interview. “If someone did, we’d make money in fees.” DeKrey hadn’t heard that Icahn was agitating to move Amylin and Biogen to his state, but said he would welcome both.

‘Bring Checkbooks’

“By all means, great, come,” DeKrey said. “I hope they bring their checkbooks.”

Under the law’s provisions, a company must include in its proxy statement a nominee for the board of directors made by any shareholder who has held a 5 percent or greater stake for two years. The law also forbids the chairman of the board of directors to be chief executive officer.

So-called staggered boards, like Biogen’s, are banned by the law. Under that system, directors are grouped into classes and only one class comes up for election each year. This means that anyone wishing to participate in a proxy fight must do so more than once.

“I’m sort of proud of it,” Icahn said about the North Dakota law, in a telephone interview. “Sure, it sounds dramatic, but if we don’t do something about the way these companies are run, even if you put all the money in the world in, you can’t be competitive.”

No physical location in North Dakota is required by law. A publicly traded company incorporated in North Dakota must file an annual report to the secretary of state every year and pay franchise fees.

Delaware Comparison

More than half of U.S. publicly traded companies are now incorporated in Delaware, according to the state’s Web site. There is no requirement that companies have an office there. The state derived about $566.3 million in franchise taxes paid by companies incorporated there in the financial year of 2008, according to data from Angela Moffett, of Delaware’s division of revenue.

Delaware’s fiscal windfall is thanks in part to the state’s long history of court rulings and its Court of Chancery, which allows companies to resolve legal issues quickly, said Hamermesh.

“There’s something enormously valuable to have specialized, sophisticated courts” that do corporate law, Hamermesh said in a telephone interview. “What Delaware courts have done for a long time is been very active in policing conflicts of interest. That’s what they do well.”

Not Binding

Icahn’s requests to reincorporate Biogen and Amylin in North Dakota are not binding in any way, though both companies said in statements they are being considered by their boards. Because Icahn has owned more than 1 percent of stock for at least a year in the companies, the boards must put the proposal up to a vote of all shareholders, even though the result would not be binding.

Icahn on Feb. 6 proposed a slate of four directors to Biogen’s board, signaling a second run for control of the Cambridge, Massachusetts-based company. To gain control of the 13-member board, Icahn’s nominees would have to win this election, and nominate another slate next year.

Biogen, the world’s biggest maker of multiple sclerosis drugs, has been an Icahn target since August 2007, when he started buying into the company. Icahn proposed buying Biogen for $23 billion, which prompted the company to put itself up for sale. When no official offers appeared, including from Icahn, the company said on Dec. 12 it would no longer pursue the sale.

Proxy Loss

The investor lost a proxy fight with Biogen last June. Icahn Capital LP and Icahn Associates own a combined 6 percent stake in the company.

Icahn’s Amylin move came on Jan. 29, when he named a slate of five directors he planned to nominate to the board. He has a 9.4 percent stake in the company, which is based in San Diego.

Icahn has had success in the biotechnology sector, most recently with ImClone Systems Inc., in which he doubled his holdings in 2006, engineered his election to the board and pushed for a sale. Eli Lilly & Co. bought ImClone last November for $6.3 billion, or $70 a share. It’s not clear how much Icahn profited from the sale because he and his funds bought and sold shares at varying prices over the past decade. An estimate by Bloomberg pegs the proceeds at $815 million.