PETA Suit Against Merck Over Shareholder Proposal Offers New Twists

| About: Merck & (MRK)

Battles between animal-rights groups and drugmakers is nothing new, but the latest spat between the People for the Ethical Treatment of Animals, or PETA, and Merck (NYSE:MRK) has a couple of interesting twists. To be specific, PETA late last week filed a lawsuit against Merck for refusing to include a shareholder proposal that would require the drugmaker to disclose its use of animal testing in all research.

Merck, however, refused to include the proposal in its proxy, prompting PETA to sue. This marks the first time that the animal-rights group has actually gone to court because a company denied a request to include a shareholder resolution in a proxy. But why exactly did Merck deny the proposal? The drugmaker contends PETA failed to prove shareholder status, even though PETA has owned Merck stock for more than two years and filed its resolution about one month before the necessary deadline. And PETA also maintains that its holdings meet the $2,000 threshold or 1 percent of Merck shares.

So what is Merck’s argument? The drugmaker wrote to PETA that, since Merck merged with Schering-Plough on November 3, 2009, PETA needed to prove ownership in Schering-Plough. Merck insists Schering-Plough was the surviving entity because a reverse merger took place. This is the same argument Merck offered in its fight with Johnson & Johnson (NYSE:JNJ) over the rights to the Remicade and Simponi arthritis meds, which was recently resolved through arbitration (back story).

The logic has often been ridiculed, however, since the drugmaker is still called Merck; Merck execs run the organization, notably CEO Ken Frazier; the headquarters are located where Merck has always been headquartered and former Schering-Plough CEO Fred Hassan floated away in a golden parachute. Consequently, PETA charges the denial violates federal securities laws and regulations.

The annual Merck shareholder meeting is scheduled for May 24 and PETA wants the federal court in Washington, DC, to force the drugmaker to include its resolution in the proxy in time for the meeting or instead require Merck to hold a special meeting to present the PETA resolution to other shareholders (here is the lawsuit). We asked Merck for a response and will update you accordingly if one is received.

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