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TORONTO (Reuters) - A fight for control of Biovail Corp went into a second round on Wednesday when a judge ruled a shareholder vote last month that went against the Canadian drugmaker's founder was held improperly by the company's board and management.
An Ontario court judge ordered Biovail to reconvene the shareholder meeting held on June 25 within 90 days. When it does, shareholders will vote on a new slate of directors being proposed by founder Eugene Melnyk to replace the incumbent board.
Melnyk, who is Biovail's biggest shareholder, argued that last month's meeting was held improperly because it lacked a quorum. Just moments before it started, the company had changed the quorum requirement that 51 percent of shares be represented to 25 percent so that the meeting could proceed.
On Wednesday, Justice Herman Wilton-Siegel determined that the bylaw amendment was not valid.
"Unless the by-law amendment was valid and effective ... a valid quorum did not exist for the transaction of business, including the election of officers," Wilton-Siegel wrote in his decision.
Melnyk, the millionaire owner of the Ottawa Senators National Hockey League team, had pulled his own block of about 18.8 million shares in advance of the meeting in attempt to have it postponed so that he could build more support for his plan.
He has proposed a new emphasis on the company's product pipeline, including a return to "difficult to manufacture" generic drugs, as well as acquiring more products and technologies.
Melnyk chose to challenge the company, claiming he lost confidence in the board. The current management wants to shut operations in Puerto Rico and shift to new treatments for disorders of the central nervous system.
During the June 25 meeting, Melnyk claimed immediately that the meeting was not properly constituted and sought a legal ruling that the results of the battle be thrown out and another meeting be called.
In arguing the case in court last week, the company's lawyer, Joel Richler, accused Melnyk of basing his decision to pull his votes on confidential data provided in a negotiated agreement.
In his ruling, Wilton-Siegel said Melnyk was within his rights to withdraw the shares.
"The guidelines do not obligate the Melnyk parties to vote their shares at the shareholders meeting or otherwise to refrain from actions that would prevent the election of the management slate of nominees at the meeting," Wilton-Siegel wrote in his decision.
"The guidelines also did not prevent the Melnyk parties from using confidential information received ... to their advantage by revoking their proxies."
After the ruling, Biovail shares, which have dropped more than 60 percent in the past year, climbed 23 Canadian cents to C$9.99 on the Toronto Stock Exchange. The shares were up 13 cents at C$9.98 in New York.
The stock has slid on concern over competition from generic versions of key Biovail products and a string of disappointing regulatory and legal rulings.
"Today's court ruling means all shareholders will have an opportunity to further evaluate the two very different visions for the future of Biovail," Bruce Brydon, the proposed chief executive of Melnyk's dissident board, said in a release.
Biovail said it would decide shortly on the date and location of the meeting.
"It's unfortunate that we will have to deal with the distraction, the inconvenience and the expense associated with reconvening the meeting," company spokesman Nelson Isabel said.
But analysts said the court's ruling only delays the inevitable conclusion that will keep the current Biovail board and management in place.
"It was a legal decision that really could have gone either way," said Scotia Capital analyst John Maletic. "All it does is just extend the process, but I don't think the results will be any different. It is an overhang, however."
Reporting by Scott Anderson; Editing by Frank McGurty