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Forest Labs Wins Glass Lewis Backin in Icahn Proxy Fight

Forest Laboratories Inc. (FRX), the drugmaker embroiled in its second proxy fight with billionaire investor Carl Icahn, won the backing of advisory firm Glass Lewis & Co. for all of its 10 directors.

Glass Lewis determined the company has been transparent with its plans to expand its product base and has made “notable strides” in governance, New York-based Forest said today in a statement. The proxy advisory firm raised concerns about a lack of objectivity among some of Icahn’s nominees, Forest said.

Icahn, Forest’s second-largest shareholder with 9.9 percent of the stock, has nominated four directors, saying the drugmaker didn’t adequately prepare for the loss of patent protection on its top-selling drug, Lexapro, and questioning the potential for the son of Chief Executive Officer Howard Solomon to succeed him. Icahn failed to get any of four nominees elected to Forest’s board last year.

The investor yesterday won the support of Institutional Shareholder Services Inc., another proxy adviser, for two of his nominees. ISS urged shareholders vote for Daniel Ninivaggi, Icahn Enterprises LP (IEP)’s chief executive officer, and Pierre Legault, CEO of Stone Management LLC and the former chief financial officer of OSI Pharmaceuticals Inc., a company sold to Astellas Pharma Inc. (4503) in 2010.

Egan-Jones Proxy Services, a third advisory firm, recommended Forest shareholders vote for all four Icahn nominees, Icahn said in a statement July 30.

Forest declined 1 percent to $32.64 at the close in New York. The shares have lost 9.3 percent in the past 12 months.

Value Obliterated

“Shareholders must realize that there is great value in Forest Labs that might well be obliterated if we do not change the current board,” Icahn wrote today in a letter to Forest investors.

Forest would make an “excellent” acquisition for a bigger drugmaker that could cut costs through overlapping sales forces and other operations, Icahn said.

“But in order for big pharma to buy Forest Labs, proposed takeover bids must see the light of day,” the investor wrote. “I do not believe that Howard Solomon and his ‘inner circle’ on the board would ever let a bid come to the fore.”

Forest Responds

“Carl Icahn is changing his story yet again,” Forest said in an e-mail. “On July 2, Icahn was asked during a television interview if he would support an outright sale of Forest and he responded, ‘no, not at this point. You can’t do it at this point.’ Now he is dangling a non-existent, hypothetical takeover premium in front of shareholders in the desperate hope it will win him votes.”

Forest said if a takeover offer existed, the board would consider it carefully and fulfill its fiduciary duties. “Any suggestion to the contrary is baseless and patently false,” Forest said.

The drug company would make a good purchase for Eli Lilly & Co. (LLY) or AstraZeneca Plc, both of which have overlapping therapeutic focuses on central nervous system disorders, said Michael Krensavage, manager of Krensavage Partners LP, a hedge fund that owns shares of Forest, Lilly and AstraZeneca.

“Forest probably would fetch at least in the low $40s,” Krensavage wrote in an e-mail today. “Probably high $40s in a bidding war.”

Mark Taylor, a spokesman for Indianapolis-based Lilly, said the company doesn’t comment on market rumors or deal speculation. A spokesman for London-based AstraZeneca didn’t immediately return calls seeking a response to Krensavage’s comments.

“The board is unanimous in its belief that the company’s current strategy positions Forest to deliver sustainable value for all shareholders,” Forest said in its statement. “Our board is squarely focused on building on the momentum we have behind our promising new products and late-stage pipeline -which is one of the most robust in the pharma industry.”

To contact the reporter on this story: Meg Tirrell in New York at mtirrell@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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