Actelion, Europe’s largest biopharmaceutical company, has been gaining a lot of attention in anticipation of its May 5 annual general meeting.
A struggle with an activist hedge fund is in the works, and the company hopes to use its sound first-quarter results as a strategy to maintain power in the boardroom.
So far, Actelion has received support from top shareholders, such as BB Biotech, and IVOX, Germany-based independent proxy voting service, but the latest recommendations from proxy advisors ISS and Glass Lewis are a mixed bag.
This comes as Elliott Advisors intensifies a proxy battle to wrest control of the boardroom from the existing directors. The investment company, which is part of the $17 billion US hedge fund Elliott Management, believes the existing board is eroding shareholder value because it ‘lacks effective management oversight’, and is ‘running a high-risk strategy for the future of the company’.
In a bid to fend off the attack, Elliott Advisors hired global proxy solicitation firm Georgeson earlier this year to help gather investor support ahead of its annual meeting, a Georgeson spokesperson confirms.
But now, proxy advisors ISS and Glass Lewis have joined the fray.
‘We believe that shareholders would be best served by keeping the incumbent board in place at this time, particularly given that an overwhelming majority of the incumbent directors as well as the new board nominees are independent,’ says Glass Lewis.
The alternative to this, in Elliott’s proposal, would include a major boardroom shakeup, with the addition of six new board members, such as former Novartis executive James Shannon, who Elliott wants to chair Actelion. Also, Elliott is urging shareholders to vote to remove the cap on board seats to allow more managers to join Actelion’s executives. A third aspect of the proposal is the sale of Actelion.
Carl Feldbaum, an Actelion board member and chairman of its nominating committee, disagrees with the Elliott proposal. ‘We have carefully evaluated the core competencies of each of our board members and nominees and believe they have demonstrated greater experience and expertise,’ he says. ‘ISS recognises in its report [that] Elliott’s board and nominees have not presented a detailed business plan for the company.’
At the same time, ISS has split its support in the battle. The proxy group released a report endorsing Elliott”s stance for board members to be elected annually as opposed to every three years. However, ISS recommended three of the six directors proposed by Elliott.
In a report revealed to Corporate Secretary, ISS says: ‘ATLN has been bold in the past, by taking its blockbuster drug to market without the aid of partners, ultimately increasing returns to shareholders. It is a company, which has adopted a business strategy centered on innovation, with its inherent risks. The question, however, is whether this is the right strategy anymore.’
‘A sale of the company might be a valid strategic alternative,’ ISS adds.
Other recommendations in the ISS report include:
— The election of Dr James Shannon, Peter Allen and Dr Anders Harfstrand to the board
— The removal of the cap on board seats because ‘if the cap were to remain in place, there is a chance the nominees who receive majority shareholder support may not be elected to the board’
— The annual elections of board members to ‘increase board accountability’
— The direct election of the chairman ‘to give shareholders the opportunity to vote on the election of board chairman’
— The election of Jean-Pierre Garnier and Robert Bertolini, who also are supported by Elliott, and
— The removal of Robert Cawthorn as chairman
‘Based on the factors discussed above, on balance we conclude that the presence of the three dissidents on a nine-member board would likely prove beneficial to long-term shareholder value,’ the report concludes.
Meanwhile, BB Biotech continues to support Actelion’s existing directors, despite the string of product failures the company has experienced in recent clinical trials.
Ahead of the May 5 annual meeting, Actelion has been publicizing its support from Swiss activist Ethos, which is endorsing all of the firm’s proposals.
‘Elliott seems to favour the sale of Actelion,’ says Ethos. ‘In the long-term interests of all the company’s stakeholders, Ethos recommends that shareholders oppose the resolutions of the hedge fund and that they support the board of directors by not appointing any of Elliott’s candidates.’