* 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 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
"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
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
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."