Forest Laboratories Inc. (NYSE:FRX) has received a strong dressing down from activist investor Carl Icahn today. The well known guru alleged that those in control at Forest were trying to create a family dynasty to control the firm.
Icahn asked in his letter to the company for comprehensive information on succession plans for the company’s current CEO Howard Solomon. He specifically question the role of Howard’s son David Solomon in those succession plans.
Forest Labs, which is based in New York City, is active in the research, manufacture and sale of ethical drug brands. The firm’s most recognizable products include Lexapro, for treatment of depression, Namenda for Alzheimer’s disease, and Bystolic, which treats high blood pressure.
The letter contained very strong language denouncing any plans that might see David Solomon take control at the company. The language pointed to the small portion of the firm Howard Solomon owns, less than 2%, and in all capitals declared that “FOREST LABS IS NOT A DYNASTY TO BE DESPOTICALLY HANDED DOWN FROM FATHER TO SON IGNORING THE GREAT RISK OF THIS ACTION TO ITS SHAREHOLDERS.”
The strong language contained in the missive cannot be ignored by investors in the company, and was not ignored by the firm itself either. Forest hit back with a statement poised to undermine confidence in Icahn.
The response declared that Icahn was simply trying to recycle arguments he made during a proxy battle with the firm last year. The statement mad mention of Icahn’s “tired playbook,” and his attempts at “maximum distortion.”
Icahn has sued the firm in a Delaware court in order to gain access to the records being kept on the succession plans. That suit was filed alongside the sending of this statement to the company, in order to draw as much attention as possible to the legal proceedings.
The call out from Icahn could mean the start of redoubled battle to take control of the firm. Icahn owns about 9.62% of the company, that makes him the second largest owner of the firm’s stock. His filing revealed that his ownership of the firm cost him about $912 million.
Icahn’s lead nominee for the board of the company, Eric Ende, has been given an incentive to take the firm’s stock above $47.50. Icahn’s total cost price implies an average purchase price of $34.55. Icahn’s other nominees in the battle are Pierre Legault, Daniel Ninivaggi, and Andrew Fromkin.
Icahn is one of the most prominent activist investors in the world. His performance in recent years has been excellent, given the macroeconomic climate. He is able to pick undervalued businesses, wrest control from reluctant boards, and add value for the shareholders.
Despite failing last year, Icahn seems determined to take control of Forest Labs. That is a worry for the board of any company, as their jobs come on the line in the face of a furious Icahn. Forest will hold its annual meeting on August 15. Until then it is likely Icahn will continue to run interference, attempting to reduce confidence in the firm’s current board in order to replace it with his own.
