UPDATE 2-Icahn issues new warning to board of Forest Labs

Fri Jul 13, 2012 3:09am IST

Related Topics

* Icahn appeals to non-management board members

* Urges them to avoid proxy fight, settle amicably

* Says CEO/Chairman Solomon dismissed prior offers

By Toni Clarke

July 12 (Reuters) - Activist investor Carl Icahn stepped up pressure on Forest Laboratories Inc on Thursday, warning that time was running out for it to accept his nominees to the company's board of directors.

Icahn appealed to Forest's non-management board members, saying his attempts to reach an amicable agreement with Chairman and Chief Executive Howard Solomon had fallen on deaf ears. The company's annual meeting is set for Aug. 15. It recently cut its profit forecast to earnings of 65-80 cents a share for the fiscal year ending in March 2013, down about 80 percent from a year earlier.

"I am concerned that we are reaching a precipice in this proxy contest from which an amicable solution is no longer possible," Icahn wrote, "and while I believe I will prevail in this proxy contest, the one thing that Howard Solomon and I do agree on, is that we both believe that an amicable solution would best serve all shareholders."

Icahn's letter asked whether Solomon had informed the board of his discussions with Icahn.

"Perhaps you were not informed by Howard Solomon (although he stated otherwise) that before putting together a slate I sought to avoid a proxy context by having you add Eric Ende and Daniel Ninivaggi to the Board, both very well qualified individuals," he wrote.

Ende is a former Merrill Lynch biotechnology analyst while Ninivaggi is president of Icahn Enterprises.

A spokeswoman for Forest said that any suggestion that the board had not been fully informed of Solomon's discussions with Icahn is "categorically false."

"The Board is fully engaged in the entire process and does not believe that Icahn's insistence on nominating two individuals paid by him, either directly or under a profit-sharing arrangement, is in the best interest of all shareholders."

Icahn is Forest's second-largest shareholder, with a stake of about 10 percent. He has nominated four directors to Forest's board, after having failed to win a battle for seats last year.

Icahn said in his letter that after Solomon rejected his proposal to replace two board members, he suggested adding his candidates without removing any existing members. That too was rejected, he said.

"If you are true in your belief that a prolonged proxy contest would be deleterious to Forest (as I am), how can you be so hastily dismissive?" he wrote.

Icahn maintains that Forest is at a "critical crossroads" and that the board has allowed management to rely on two products: antidepressant Lexapro, which has lost market exclusivity, and Alzheimer's drug Namenda, which is set to lose it in 2015, opening the way for generic competition.

"I doubt, along with many analysts, that the current pipeline will be sufficient to pick up the slack," he said.

FIGHT OVER SUCCESSION

Icahn has also taken aim at 84-year-old Solomon's succession plans, saying he is preparing to install his son David Solomon as CEO without a proper review. Forest said it has hired executive search firm Spencer Stuart to find a successor to Solomon.

Howard Solomon defended the record of his son, who serves as senior vice president of corporate development and strategic planning. He also pointed to the role of Icahn's son Brett in executive positions within Icahn's own organization as well as on the boards of public companies.

At an investor meeting last month, Solomon touted products expected to fill the gaps left by Lexapro and Namenda, including five drugs that have been recently approved for conditions including depression, fibromyalgia and high blood pressure.

The company awaits approval for drugs to treat chronic obstructive pulmonary disease and irritable bowel syndrome, and expects to submit applications for a new antidepressant and an antipsychotic this year.

Icahn in his letter boasted of his success in increasing the share prices of biotechnology companies he has been involved with over the past five or six years, including ImClone Systems, which was sold to Eli Lilly & Co in 2008 for $6.5 billion; Biogen Idec Inc, whose shares soared after Icahn's representatives helped engineer a turnaround; and Genzyme Corp, which was sold to Sanofi SA for $20 billion.

But Icahn has lost his former lieutenant in the biotech sphere - Alexander Denner, who is setting up a hedge fund of his own. By most accounts Denner, who has a background in science and investment management, was instrumental in generating more than $2 billion in profit from Icahn's biotech investments.

Ninivaggi received a Master of Business Administration from the University of Chicago and a law degree from Stanford University. Forest claims that Ende, a physician and former analyst, won fewer votes than any of the 14 board nominees during last year's contest.

Whether Icahn will see the same kind of success with Forest as with other biotech companies remains to be seen. In the meantime, his determination is clear.

"I know several of you have known Howard Solomon for many, many years," Icahn wrote to the directors. "Do not let your personal relationship with Howard Solomon get in the way of what is right for the company and what your fiduciary duties require you to do. Time is running short."

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