Investor Carl C. Icahn on Monday said he bought more shares of
, while unleashing more criticism of the company's effort to acquire
Icahn, who has launched a proxy fight to block the deal, said Monday that he now owns 9.78% of Mylan's stock, up from 8.9%, according to a filing with the
Securities and Exchange Commission
. Icahn began buying Mylan shares on July 26, the day Mylan announced it bid for King in a deal offering to swap 0.9 Mylan shares for each King share. Icahn is now the biggest Mylan shareholder with 26.29 million shares.
Icahn has repeatedly criticized the King Pharma proposal as dilutive to Mylan shareholders and too expensive. On Monday, he fired another shot at Mylan management, citing King's Oct. 28 disclosure that it might have to restate earnings because of high levels of returned products. Until it resolves the matter, King said its third-quarter results should be considered preliminary.
The latest financial statement from King, plus existing problems including investigations by the SEC and the Department of Health and Human Services, "reinforce our belief that the acquisition of King by Mylan is extremely risky and could lead to the diminution of shareholder value," Icahn said in an Oct. 29 letter to Mylan that was included in his latest SEC filing.
Adding that Mylan "may now have a golden opportunity to sidestep the King transaction," Icahn said King is a company that Mylan "should avoid at any price."
The investor also bragged that "we certainly feel that our view of King stock as a good short has been vindicated by events." Mylan has attacked Icahn for shorting King's stock -- betting that it would fall -- while buying Mylan's stock and trying to block the acquisition.
Icahn added that he has hired a consulting firm, A.T Kearney, to evaluate the generic-drug industry, Mylan and King. The firm's report, which will be completed soon, "will show there are many avenues" that "make more strategic sense" for Mylan than acquiring King, Icahn said.
Robert J. Coury, Mylan's vice chairman and CEO, responded by saying that Icahn was offering "the same kind of rhetoric" that the investor has offered in the past. Coury said his board and management team will "continue to be thorough in their analysis of King and will neither be distracted nor deterred by Mr. Icahn."
On Thursday, King said that as a result of the "successful implementation" of a new inventory management agreement designed to keep better track of drugs being held by wholesalers, the company had experienced "a high level" of product returns.
"Considering this high level of returns, we have determined that a thorough evaluation of our return reserve is prudent before we formally close the third quarter of 2004," James R. Lattanzi, King's chief financial officer, said on Thursday. King will determine if any of the product-return reserves accrued this year should have been recognized in previous years. If so, that would "likely result" in a restatement of financial results and a violation of the King-Mylan agreement.
Last week, Mylan pointed out that a restatement of King's financial statements isn't an automatic deal breaker; Mylan still has the option to pursue the deal. "Although a restatement would result in a failure to satisfy a condition to close the pending Mylan-King transaction, the company has made no decisions and intends to evaluate the issue as additional information becomes available," the company said.
Coury said last week that the acquisition is the "most viable option" for Mylan's shareholders. It's important, he added, to separate King's assets from "all prior issues" regarding King's previous management. The purchase agreement says a financial restatement or other "material adverse events" don't automatically cancel the deal. The agreement enables either party to cancel the transaction, under certain circumstances, by paying an $85 million breakup fee.
King said last week that it continues to talk with government agencies about settling investigations. Based on discussions, the company said it "now believes that it is reasonably likely" that it could achieve "a comprehensive settlement" regarding allegations of underpayment to Medicaid, inadequate record-keeping and inadequate internal controls. As of June 30, King had accrued $130.4 million as a reserve for the underpayments and settlement costs.
King said it expected that a settlement with the SEC on record keeping and internal controls "would not include charges that the company's past or present filings contained material misstatements or omissions." King added that it "does not anticipate being required to restate any past or present financial statements as a result of the pending investigations."
King said it "did not expect" that a settlement would prevent it from doing business with Medicaid or any other government health program. "King does not expect that any criminal charges will be asserted against the company," King added. Both of these expectations, if realized, are crucial to King's fulfilling the terms of its agreement with Mylan.
On Monday, Mylan's stock off a penny at $17.21. King was down 4 cents at $10.87