The Real Story: American Pharma's Tangled Web

American Pharma did not respond to several interview requests for Dr. Soon-Shiong.

The problem lies not only in the appearance that Dr. Soon-Shiong shifted money from minority shareholders to his own pocket, but in the fact that the company has not disclosed how it came up with the valuation for American BioScience.

Watching the Watchdogs

In July 2005, American Pharma set up a special committee of independent board members to evaluate the deal. Dr. Stephen Nimer and Leonard Shapiro will be paid $125,000 each and Kirk Calhoun is to receive $150,000 for their services regarding this transaction. In sum, these three gentlemen unanimously approved a deal for which they were paid six-figure incomes by a company whose CEO was dramatically enriched by their decision.

American Pharma did not respond to several interview requests for Kirk Calhoun. Dr. Nimer, Shapiro and former CEO Al Heller, who resigned when the deal was announced in November, have not returned phone calls seeking comment.

It's not unusual for board members to be paid for serving on special committees. But considering that independent directors of American Pharma are paid just $2,500 per meeting (not particularly generous), the six-figure payments for examining the American BioScience deal appear excessive.

Todd Fernandez , senior research analyst with proxy adviser firm Glass, Lewis & Co., believes the American Pharmaceutical situation is a classic example of why investors should beware of companies that are controlled by another entity. "Such actions prove why owning minority positions in majority-owned shares is not a good idea," he says. "Shareholders will have to take what's given to them."

Morningstar analyst Brian Laegeler has issues with what appears to have been a rubber-stamped deal. "Did the board do a market test? We don't know if APP overpaid. Nothing has come out to make me think it was a fair price."

What is unclear is if American Pharma was the only suitor. With other bidders, theoretically, American Pharma should have had to pay only $1 more than the highest bid. But with no other bidders, the valuation in this incestuous relationship is an even more important consideration.