Carl Icahn Responds to Forest Labs Board
Carl Icahn today issued the following statement to the Board of Directors of Forest Laboratories, Inc., in response to their letter to shareholders issued on July 16, 2012.
Your recent letter has taken things a step further from obfuscation to blatant mischaracterization. Therefore, I would like to clarify the following:
Pierre Legault – Contrary to your letter, Mr. Legault was not the cause of the conditions that led to the management shakeup at Jean Coutu. He was part of the solution. As clearly set forth in the Reuters' article that you cite in support of your unfounded assertions, Mr. Legault was made EVP at Jean Coutu in November as a result of poor results for the quarter ending that month – he arrived after the problem! In addition, as clearly set forth in the Wall Street Journal article you cite, Mr. Legault was not dismissed from Rite-Aid. Your liberal use of misleading citations makes me wonder whether you've read the articles you refer to at all or if you've read them and hope no one else does. YOU SHOULD IMMEDIATELY RETRACT THESE COMMENTS AND ISSUE A PUBLIC APOLOGY TO MR. LEGAULT.
Daniel Ninivaggi – Daniel Ninivaggi is the president of a multi-billion dollar Nasdaq listed company and more importantly, he is an officer of your second largest shareholder. In that capacity and as a board member of various companies, including Motorola Mobility and CIT, Mr. Ninivaggi has enacted significant cost reductions focused on operating improvements and G&A spending, areas that we believe need significant improvement at Forest. Moreover, Mr. Ninivaggi has monitored and overseen capital spending to safeguard against misuse and inefficient allocation – particularly significant at Forest given its $3.2 billion of cash and the exigencies created by the Lexapro/Namenda revenue gap. Accordingly, he is highly qualified to be a Forest Labs board member and his interests are well-aligned with all other shareholders. Nonetheless, you say that Mr. Ninivaggi has no relevant experience. Interestingly, when you tout the credentials of your existing board, you mention being an "attorney" as the credentials of one of the current board members. I assume you are referring to Dan Goldwasser, as I see no other discernible qualifications that he possesses. Note that, among his many qualifications, Mr. Ninivaggi was a partner at a major law firm for several years. I suppose being an attorney only makes one qualified to serve on the Forest board if that attorney is also an incumbent director – how convenient.
Andrew Fromkin – Andrew Fromkin would be, in my opinion, a perfect fit for the Forest Labs board. He holds relevant qualifications far beyond his recent experience at Clinical Data that would benefit any pharmaceutical company. Most recently, Mr. Fromkin led Clinical Data, Inc., a public company, through a successful transformation into a pharmaceutical company where he demonstrated his experience in drug licensing and M&A transactions, efficient drug development and gained first-pass FDA drug approval of Viibryd, a drug that the company is relying on significantly to make up the Lexapro/Namenda revenue gap. Further, he not only brings a strong understanding of pharmaceutical business operations but from his extensive business experience in the healthcare industry, he has developed a deep understanding of other healthcare sectors and relevant strategies that are vital to achieving commercial drug adoption. I just ask that you honestly compare his qualifications to those of some of the incumbent directors. To say that he is not qualified is absurd in my opinion.
Eric Ende – Your criticisms of Mr. Ende are baffling to me. I expend personal resources to compensate and incentivize a highly qualified individual to serve on the Forest board and you claim this makes him conflicted. But in fact, like Mr. Ninivaggi, Mr. Ende's interests are tied to the success of Forest for all of its stockholders. He only makes money if Forest's stock price goes up during the next 2 ½ years which is good for all stockholders. Is Howard Solomon conflicted when you grossly over-compensate him in options and restricted stock with accelerated vesting while he oversees a massive destruction in shareholder value over the past 10 years? Is it a conflict when Howard Solomon was selling stock while the company was repurchasing stock? Is it a conflict when Howard Solomon was part of a board meeting where his potential exclusion by the US government was being considered? I don't believe this Board has the slightest grasp over what constitutes a conflict. In addition, as I am sure you know, just because Mr. Ende was not elected to the Board last year does not mean that stockholders feel the same this year. Under your watch, Forest has underperformed your self-chosen peer companies by 21% since last year's meeting. Given that underperformance, it wouldn't surprise me if many shareholders vote differently this time around. YOU SHOULD NOT USE LAST YEAR'S VOTE AS AN EXCUSE FOR COMPLACENCY.
Perhaps in your zeal to preserve the status quo at Forest you have failed to recognize that a lack of alignment with management is not a conflict of interest.
You express concern regarding the independence and qualifications of my nominees. If only you employed that exacting (albeit incorrect) scrutiny over the company's board members, perhaps Kenneth Goodman, Howard Solomon's "right hand man" at Forest for nearly 20 years, wouldn't be the presiding "independent" director, or perhaps Dan Goldwasser, Howard's old "buddy" on the board for the past 35 years, wouldn't be the Chairman of the Compensation Committee (even after many of the compensation practices of the company have been roundly criticized). And recall shortly after I commenced my proxy contest last year, you replaced two board members, George S. Cohan, 87 years old, and William J. Candee, 84 years old. Prior to that, Mr. Cohen, president of George Cohan Company, Inc., a consultancy, was on the Board for 35 years and Mr. Candee, president of a local trucking company and "of counsel" at a mid-size law firm, was on the board for over 50 years. It seems to me that you have two sets of standards in assessing director qualifications – an overly lenient standard for incumbent directors and an excessively unforgiving standard for nominees chosen by shareholders.
I also find it almost comical that you superficially assert that you have "carefully reviewed and considered Mr. Icahn's nominees and has determined that his candidates are far less qualified than our slate of experienced directors." All this without the courtesy of a single interview. If this is the extent of deliberation involved in all significant board decisions, then shareholder value may be imperiled to an even greater degree than I imagined.
It is my strong belief that Forest will benefit greatly from a board with a stronger shareholder orientation. You say that having directors that are aligned with me as a large shareholder creates a conflict of interest or will be negative for the company and other holders. But it seems to me that the stock performance of other companies where we have succeeded in electing directors proves you wrong. I believe that my nominees would be a strong force in replicating the stellar results that persons I have nominated to boards have helped to produce in other bio-pharma companies, such as Amylin, Biogen, Genzyme and Imclone. What you disparage as a conflict is in fact the true recipe for success — at Forest and at any business enterprise, the alignment of the board of directors of a company with the interest of its owners — the stockholders — rather than the interest of non-owner management.
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