Proxy Battle: What's Happening Between Starboard And DepoMed?

Specialty pharmaceutical DepoMed Inc DEPO received a significant boost in early April, following activist investment firm Starboard Value's disclosure of a significant stake in the company.

Context Of Proxy Battle

At the time of the disclosure, Starboard stated it had "significant concerns regarding serious corporate governance deficiencies, questionable capital allocation decisions, and egregious actions," in addition to saying DepoMed has a "troubling record of egregiously manipulating the corporate machinery to entrench management and the Board and […] meaningful change is required."

Related Link: Activist Investor Reaffirms Stance On DepoMed, Says "Meaningful Change Is Needed"

On April 7, Starboard sent a letter to DepoMed requesting record date for a Special Meeting of Shareholders. The gist of the letter implied that the Special Meeting's agenda would be to "remove our entire Board of Directors," according to DepoMed.

About a week after Starboard's disclosure, Starboard issued a follow-up statement responding to DepoMed's own announcement that it would no longer be reincorporating the company from California to Delaware. Benzigna reported, "The company said on Thursday it will not reincorporate itself in Delaware as it is not in the interest of shareholders and would result in a ‘costly and distracting proxy contest.'" However, Starboard's response argued the reasoning for backing out of the proposed reincorporation as "completely disingenuous."

On Monday, DepoMed issued a press release announcing "it has established the close of business on April 26, 2016 as the Request Record Date to determine shareholders entitled to request the Special Meeting of Shareholders (the "Special Meeting") proposed by Starboard Value LP ("Starboard"). Starboard now has 30 days to submit a request to hold a Special Meeting signed by holders of 10 percent or more of the Company's shares as of the Request Record Date."

Analyst's Latest Take

Against this backdrop, Chiara Russo of Cantor Fitzgerald said, "News from the company this morning touched on the impending proxy battle between current DEPO management and activist investor, Starboard."

The analysts came to the conclusion based on the information available that Starboard could see their agenda actualized, but DepoMed should not be underestimated. "Though these movements are aimed to benefit DEPO in terms of shareholder turnover, by delaying as long as possible, in our view Starboard could ‘load the deck' and push their agenda to fruition…then again, so could DEPO."

Russo explained the significance of the timeline, "This gives Starboard 30 days to submit the Special Meeting request, which puts the meeting date between June1 and July 25. DEPO has encouraged Starboard to expedite this process, which again looks good optically. However, this is all about timing and shareholder churn. The longer Starboard can push out the date, the more ‘Starboard friendly' investors could be captured by the Record Date. The flipside here is that DEPO legacy investors could play this game too."

Cantor Fitzgerald currently rates DepoMed at Buy with a $26 price target. At time of writing, DepoMed was trading at $17.52, down 0.11 percent on the day.