Icahn Sends Letter to FRX CEO: "Your Recent Statement Is Rife With Inconsistencies, Misstatements And Doublespeak"
Howard Solomon Chairman, CEO and President Forest Laboratories, Inc. 909 Third Avenue New York, NY 10022
Your recent statement is rife with inconsistencies, misstatements and doublespeak. I find your statement that we are attempting to distort and distract particularly disingenuous. You and I obviously have a vastly different definition of distortion and distraction. It seems to me that you would believe it to be a distraction if a member of the board would dare question the propriety of your receiving in excess of $60 million in compensation while you oversaw a 50% decline in the company's share price. Or perhaps you think it is a distraction if a member of the board asks whether it is appropriate to continue to keep stockholders in the dark regarding the succession plans of a company that has an 84-year old Chairman who has been the CEO for 35 years and has continually promoted his son (whose only other experience involves producing movies). It can never be a distraction and in fact it is the core role of the board to place the best interest of the shareholders over the interests of its Chairman and CEO and my greatest concern is that given the history and composition of this Board, this is not the case at Forest Labs. Additionally, based on our “activist record,” I find your statement that having our candidates on the Board would be a distraction both laughable and indefensible. We have greatly enhanced value in numerous companies on which we had minority board representation, particularly in bio-tech companies, which include Amylin, Biogen, Genzyme and Imclone. When our representatives first joined the Amylin board in June 2009, the stock was trading at $11.26 per share. In no small part due to our candidates' efforts, it was just announced that Bristol-Myers agreed to acquire Amylin for $31.00 per share, representing an increase of over 175% from that June 2009 price. At the time very few thought this outcome was possible. Additionally, the share prices of Biogen, Genzyme, and Imclone have increased by approximately 180%, 48%, and 132%, respectively, since the date our representatives joined (or announced joining) those boards. I believe there is little argument that without our candidates' presence on the boards of these companies these stellar results would not have been obtained. Indeed, from the time our candidates joined the boards of these companies, theirs stocks have meaningfully outperformed the biotech index. We believe the candidates we intend to nominate all have superior qualifications and would be productive members of the Forest Labs' Board. We also believe they will be a strong force in replicating the stellar results that our nominees have helped to produce in the bio-tech companies mentioned above. Since your misleading letter, I have given a great deal of thought to the question of why you are afraid to give us board representation. I believe I have deduced the answer. Over the years of being a successful activist I have learned to understand thought processes of certain types of CEOs. As a result, I have come to a disturbing conclusion. Several years ago you began a pattern of selling Forest stock at prices substantially higher than today's price. Those sales now look to me like a savvy bet against the prospects of a company that was not prepared to meet the calamitous events that would befall it several years in the future when Lexapro went off patent. However, unfortunate loyal shareholders that were not privy to your knowledge and that still hold stock today have suffered very significant losses. You, on the other hand, who have sold over $500 million worth of Forest stock, are in an excellent position. Be assured, we intend to thoroughly investigate by all available means whether the knowledge you had at the time you sold your stock was fully disclosed to other less fortunate shareholders and to determine how you were so prescient in selling your Forest stock at prices well above the current market. Today as a result of your prophetic sales, your position as CEO and the fact that the Board is stacked with members that in our opinion appear to be your loyal “buddies,” you are in the enviable position to make another “killing” at no risk to yourself. The stock is now at a low point and we believe the company is at risk, especially in light of the fact that the recent launches of Teflaro and Daliresp missed your own issued guidance and in a few years Namenda will come off patent. Despite this you tell the shareholders all is well and hope they will continue to drink the Kool-Aid. But how can we believe you when you said all was well 5 years ago when you sold over $200 million of Forest stock. I believe the only way all will be well in this company is if management is held accountable. As things currently stand, your “buddies” can award you “boat loads” of options and you can “swing for the fences”. You can even possibly risk dissipating the nearly $3 billion of the company's cash in an all or nothing effort if things get worse. If successful you win and if unsuccessful shareholders lose. If fact, we believe that shareholders may well be facing a second act of what occurred several years ago. In addition, your “buddy” board can make your son your successor. The three board members added last year would find it difficult or impossible to stop such a scenario from being activated. The only event that could put a crimp in such a plan is my candidates getting elected to the Board. Indeed, my candidates would be a “distraction” to the scenario outlined above and I could indeed understand based on my above scenario why you are fighting them so vigorously. Howard, I hope I am being overly cynical and I am incorrect about your motivation. I hope you will avoid a contentious and costly proxy fight and give your second largest shareholder board seats.
Very truly yours,
/s/ Carl C. Icahn
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