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Icahn aims at longtime Forest CEO in shake-up bid

Investor Carl Icahn speaks at the Wall Street Journal Deals & Deal Makers conference, held at the New York Stock Exchange
Investor Carl Icahn speaks at the Wall Street Journal Deals & Deal Makers conference, held at the New York Stock Exchange

By Lewis Krauskopf

NEW YORK (Reuters) - Billionaire investor Carl Icahn is taking aim at Forest Laboratories Inc's longtime chief executive officer as he seeks to shake up the U.S. drugmaker's board.

In a U.S. securities filing, Icahn criticized Forest's board for spending to defend CEO Howard Solomon, who is challenging a potential U.S. government action to exclude him from participating in federal healthcare programs. The move followed a $313 million company settlement last year for improper marketing and distribution of its drugs.

Icahn, in the filing, also cited the "poor performance" of Forest's stock over seven years and the company's "failure to adequately prepare" for the patent expiration of its top-selling Lexapro antidepressant early next year.

"The reporting persons find it hard to understand why this board has indicated that it will continue to spend the shareholders' money to fight the government on behalf of Mr. Solomon," Icahn and his related entities said in the filing late on Friday.

The filing included Icahn's first public comments since Forest disclosed last week that the investor planned to nominate four members to the drugmaker's nine-person board.

Icahn also revealed a 6.95 percent stake in Forest, above the 6.5 percent stake cited by Forest last week, which would slate him as the company's second-biggest shareholder behind Wellington Management's 12.2 percent stake, according to Thomson Reuters data.

In a statement, Forest defended Solomon, who at age 83 has served as CEO since 1977.

"We believe Mr. Icahn's attacks on Mr. Solomon are particularly unwarranted," the company said. "Mr. Solomon has been an outstanding CEO who has achieved a 23 percent annualized return for shareholders over his 34 year tenure."

Forest's shares are up more than 40 percent in the past year, but are trading at about half the price of their peak 2004 levels.

Forest also called the U.S. government's targeting of Solomon "unwarranted and unprecedented," saying he has never been accused of any wrongdoing by the government.

FOREST'S PATENT PROBLEMS

Icahn has been instrumental in several shake-ups in the healthcare industry of late, obtaining seats on the board at biotech Biogen Idec Inc and weighing in on the $20 billion sale of Genzyme Corp to France's Sanofi SA .

In the filing, the investor said he had requested documents from Forest under Delaware corporate law related to the moves by the U.S. Health and Human Services Department's Office of the Inspector General involving Solomon.

According to Icahn's filing, his representatives met with Forest on June 14, the day after Forest disclosed Icahn's stake and board member proposals. No agreements resulted from the meeting, the filing said.

With a market value of $11 billion, Forest is a mid-size drugmaker but faces problems similar to bigger pharmaceutical companies, which are on the verge of significant revenue pressures due to patent expirations for top products.

Some analysts said last week they were not surprised by Icahn's activism, saying that Solomon has failed to outline a convincing strategy to shore up Forest's business ahead of Lexapro's patent expiration and the expiration expected for Alzheimer's medicine Namenda in 2015.

While a sale of the drugmaker was seen as less likely, the analysts speculated that Icahn could push for more aggressive cost cuts or dealmaking, or seek share buybacks.

Icahn's nominees are Alexander Denner, who has served as managing director of Icahn-affiliated entities since 2006; Harvard Medical School genetics professor Richard Mulligan; Lucian Bebchuk, a professor of law, economics and finance at Harvard Law School; and Eric Ende, a former biotechnology analyst at Merrill Lynch & Co.

Forest's annual meeting has yet to be scheduled, but is often held in August.

Forest shares rose 1.6 percent to $39.31 in morning trading on the New York Stock Exchange.

(Reporting by Lewis Krauskopf, editing by Gerald E. McCormick)

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