Mylan and Icahn Turn Up the Volume

The drugmaker and the financier exchange another round of barbs over the pending King acquisition.
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Mylan Laboratories

(MYL) - Get Report

and investor Carl C. Icahn resumed sniping at each other Wednesday over Mylan's proposed acquisition of

King Pharmaceuticals



Lost amid the duel of derogatory comments are two unanswered questions. When will Mylan decide if King's recent financial restatement is a deal-breaker? And when will Mylan's shareholders vote on the matter as outlined in the Mylan-King merger agreement?

Mylan announced July 26 that it planned to buy King, offering 0.9. shares of Mylan stock for each share of King stock, valuing the transaction at the time at $4 billion. The deal was supposed to close by year-end, subject to approval by regulators and respective companies' shareholders.

Mylan's board "is well aware of your persistent threats ... and your threats will have no effect whatsoever on the board's commitment to fulfill its fiduciary obligations at all times," said Milan Puskar, Mylan's chairman, in the latest salvo fired back at Icahn.

"The board will continue to be thorough in its analysis of all aspects of the King Pharmaceuticals transaction," Puskar said in a Wednesday letter to Icahn that was also submitted to the

Securities and Exchange Commission

. "It is evident that you understand neither the past nor the future of the company. Indeed, I believe that you, as a stock speculator, care nothing about Mylan's future."

The companies can call off the deal at any time with the approval of both boards of directors. Either company can walk away if the deal is not completed by Feb 28. The transaction can be canceled for several other reasons, including King's restatement of earnings. Mylan has noted that the King restatement simply gives Mylan the option to cancel the deal; so far, Mylan continues to pursue King.

Since July 26, Icahn has acquired about 9.78% of Mylan's shares. He is now the company's second-largest shareholder, and he has led the opposition to the deal, saying it is too expensive and too dilutive to Mylan shareholders.

He has threatened to run a slate of replacement candidates against Mylan's board, and he has offered to buy the rest of Mylan's shares for $20 a share. Mylan rejected the offer. Icahn also recently revealed a short position representing 2.2% of King's shares.

Puskar's latest comment was in response to a Dec. 20 correspondence from Icahn to Mylan's board that contained a "Dear Shareholder" letter from Icahn, outlining his opposition to the King acquisition.

"You should know that we are firm believers in the concepts of corporate democracy," Icahn said. "While we do not believe that the proposed Mylan/King transaction is beneficial to Mylan, we do not oppose your bringing the matter to Mylan's shareholders for a fair vote."

Icahn warned that if Mylan's board tries to restructure the deal so that Mylan shareholders would be prevented from voting, he would "seek to replace the Mylan board as early as is legally permissible" with a new board that would investigate "past transactions" approved by the current board. He also threatened to sue the board if it tries to restructure the King deal.

Wall Street analysts have basically stayed on the sidelines watching the invective fly between Mylan and Icahn. Since the acquisition announcement, there have been three downgrades and one upgrade of Mylan's stock, and three downgrades of King's stock. Most ratings changes took place soon after the deal was announced, reflecting analysts' malaise about the transaction.

"Mylan acts like it doesn't feel threatened," said Sena Lund of Cathay Financial, an investment research firm, in an interview Wednesday. "I think Mylan's interest in King is persuasive and aggressive."

Lund, who has a neutral rating on King and doesn't follow Mylan, said King's final report on its financial restatement should be coming "sooner rather than later. The ball is in Mylan's court." (Lund doesn't own shares in either company; his firm doesn't have an investment-banking relationship.)

Earlier this month, King said it would restate financial statements for 2002, 2003 and the first six months of 2004. King said it is still studying whether it will need to restate results for 2000 and 2001. Its third-quarter 2004 financial results are still considered preliminary.

The restatements are unrelated to investigations of King by the Department of Health and Human Services and the SEC.

The financial problems and the government investigations are among the many items cited by Icahn in his opposition to the Mylan-King deal.

In addition, Icahn recently sued Mylan and New York investment manager Richard C. Perry in federal court, alleging that Perry's purchase of Mylan's shares violates the principle of "one person, one vote" for shareholders.

Perry reported to the SEC in late November that he had acquired 9.89% of Mylan's shares, thus becoming the largest shareholder. Perry supports the King-Mylan deal. He also owns about 2.9% of King's shares.

Icahn alleges that Perry has engaged in a complex hedging strategy with two investment banking firms that, in effect, allows Perry to vote his Mylan shares without having an economic interest in the company. Perry's filing with the SEC states: "In order to execute certain hedging transactions, funds under the management of Perry Corp. have entered into stock loan transactions with Bear Stearns Securities Corp. and Goldman, Sachs & Co. pursuant to which such funds have borrowed shares of common stock. All of such borrowed shares of common stock have been sold by such funds."

Goldman Sachs is King Pharmaceuticals' adviser on the Mylan-King deal.

In trading Wednesday, King's shares were off 3 cents to $12.29, while Mylan's stock was down 16 cents to $17.61.