Although the company has won out over Icahn fornow, it is worth nothing that there is no "I can't" in Icahn. After the votingwas done, Icahn sent a letter to Forest Labs CEO and Chairman Howard Solomonsaying, "Congratulations on your victory! I look forward to our next meeting."Icahn also went on to note that activism, especially in biotech, usually can sometimestake longer than one thinks, offering up examples like Imclone, Genzyme andBiogen Idec. This suggests that Icahn may have more activist actions up hissleeve, and the likelihood is that even in the absence of any such action, Icahnwill get at least some of what he wants in the future. Even if he never managesto get a foothold—or footholds—on the board, Icahn has some 9.2 percent ofForest shares, reportedly making him the second-largest shareholder.
In fact, Forest may have blinked a little in thestandoff, having two of its longtime board members not stand for re-election,in what is seen as an attempt to "shake up" the board a bit to satisfy Icahnand others that progress is being made. Market-watchers have at timesmaintained that board members are too closely allied with Solomon, who has atarnished image these days and is being criticized by some—Icahn being one ofthose voices—for not having sufficiently effective plans in place to deal withlooming patent expirations. Lexapro and Namenda are the two drug names that aremost prominent in that concern.
In addition to assuring investors that blockbusterdrugs will arrive to fill in the gaps left by Lexapro and Namenda—and changingup the board membership slightly—Forest bolstered its case by announced thisweek that it would augment an existing share buyback program by $350 million.
Forest Labs had earlier gotten support from twoproxy advisory firms, Institutional Shareholder Services and Egan-Jones, whichhelped sway investors—although another, Glass Lewis, recommended thatshareholders elect one Icahn nominee: genetics professor Richard C. Mulligan ofHarvard University. But what probably most helped the company win out overIcahn's attempt to reshape the board was the U.S. government.
The federal government had been working to excludeSolomon from conducting business with federal healthcare programs. Given thatsuch program represent approximately 40 percent of Forest Labs' revenue, thishad given Icahn some very strong early leverage for his board machinations. Butit abandoned those plans earlier in August.
Still, Icahn had been hoping that the attempt to excludeSolomon might be enough, and wanted to use certain confidential documents fromthe case against Solomon against the CEO and the slate of board nominees thismonth. Indeed, the Delaware Chancery Court did issue a ruling to allow entitiesaffiliated with Icahn to lift confidentiality restrictions on certain documentsrelating to the then-potential action by the Office of the Inspector General ofthe U.S. Department of Health and Human Services (HHS-OIG) to exclude Solomonfrom participating in federal healthcare programs.
In a statement issued Aug. 8, Forest Labs noted:
"Mr. Icahn's decision to publicize the Delaware litigation is a sideshow andan effort to advance his self-serving agenda in his proxy contest. Thedocuments to which he refers demonstrate what Forest has said all along: thatMr. Solomon has never been accused of any wrongdoing; that the potentialexclusion is based solely on his 'association with' Forest; and that HHS-OIG isconsidering embarking on an unprecedented and unjustified action.
"Icahn is wrong when he states Forest that does not have a plan to deal withthe 'contingency' of Mr. Solomon's potential exclusion. As previouslyannounced, the Forest Board does have a succession plan. In the event thatHHS-OIG decides to move forward and Mr. Solomon's legal challenges areunsuccessful, the succession plan will be implemented, Mr. Solomon will stepaside and the company will continue to do business with the federal government."
In addition, Forest Labs accused Icahn of "seizing on a fleeting piece of acomplex, six-year negotiation. The fact is that there was no basis for thegovernment's request—it was refused and the government quickly withdrew it. Ifanything, the documents reflect how the government allowed Forest to agree to afinal settlement with the expectation that the entire exclusion issue had beendropped, only to have it raised later by HHS-OIG in an unprecedented action andwithout a valid basis."