Bitter ICN Proxy Battle Looms : Management: Dissident stockholder is now free to resume effort to unseat Milan Panic.
Opening salvos were fired this week in a battle for control of ICN Pharmaceuticals Inc., a Costa Mesa company that has come under fire from a dissident stockholder intent on toppling its board of directors.
Rafi M. Khan, once one of ICN’s most ardent followers, is now its chief detractor.
In spring, he threatened to launch a proxy fight to unseat Milan Panic, who founded the drug company in 1960, and the other eight directors. A ninth director to the board, a Nobel Prize winner, was elected this week.
With recent clearance by the Securities and Exchange Commission, Kahn now seeks to persuade ICN shareholders that the company would run more profitably under his command.
“We are in the process of sending out proxy (solicitation) cards,” said lawyer Robert J. Hasday, who represents Kahn. “We also plan to talk to investors individually.”
Panic and Khan have declined several requests for interviews this week.
Khan’s bid for shareholder support follows months of legal wrangling that all but tied his hands since April. By Wednesday, D.F. King & Co., a New York-based proxy solicitation firm, said it had sent thousands of letters on Khan’s behalf.
In documents filed with the SEC, Khan maintains that Panic has not managed the company to best serve the interests of its stockholders, that he received extravagant compensation--more than $6 million in 1991-- and made corporate decisions that have caused ICN to lose about $150 million over the past five years--$65 million last year alone.
For its part, ICN has gone on the defensive, taking out a $114,000 full-page ad in the Wall Street Journal this week lambasting Khan. It has hired its own proxy solicitation firm--Georgeson & Co. in New York--to mail out its own proxy statements urging investors to ignore Khan. Those documents should be in the mail by next week, company officials said.
With the phrase, “Don’t be Conned by Khan,” emblazoned across the top, the ad described Khan as an unstable liar and a speculative trader who would run ICN into the ground.
“A controversial stock broker called Rafi Khan with no pharmaceutical management experience is plotting an attempt to take over your company at your expense,” the ad said. This tactic was criticized by several analysts--”I think it was stupid,” said one.
ICN spokesman Doug Shoen said that the company is also planning to run a similar full-page ad in the Los Angeles Times within the next few days.
“It is time for ICN to get the message across,” Shoen said. “We intend to take that message to shareholders in every way we can.”
Both sides plan a highly public--and increasing venomous--public relations campaign as they prepare for a Dec. 15 stockholder meeting. Until then, Khan and Panic will engage in the arduous task of persuading shareholders who can best manage the firm--a task that may be more difficult than either imagines.
Investors and analysts generally agreed that change should be implemented at Panic’s four-company drug empire: ICN, SPI Pharmaceuticals Inc., ICN Biomedicals Inc. and Viratek Inc., all based at ICN’s Costa Mesa headquarters.
But many do not believe that Khan is the cure to ICN’s on-again, off-again financial and management problems.
Khan recently was hired as a broker with Phoenix-based Desert Mountain Securities--his third job this year. He was hired there after quitting his positions as director and broker three weeks ago at RKS Financial Group Inc. and its brokerage unit, Reynolds Kendrick & Stratton in Beverly Hills.
Before that, Khan worked as a broker for H.J. Meyers & Sons Inc. of Beverly Hills, where he sold ICN stock as an underwriter in 1992.
A federal judge ruled in May that Khan was using insider information to solicit shareholder support while at H.J. Meyers and lied under oath. He also is the subject of lawsuits in relation to other stocks he represented, including Future Communications, a Dallas-based cable TV programmer, and Spectrum Information Technologies Corp., a New York telecommunications firm.
Some observers said that they believe Khan’s earlier troubles with securities regulators would most likely hurt his chances for success in the proxy fight, which comes at a time when investors in medical companies are wary of needless change and would likely support the current board.
Nevertheless, Kahn has introduced several concerns about the company’s operations that officials there should not ignore, analysts said.
“Rafi has raised some valid issues,” said Eugene Melnitchenko, a health care analyst with Legg Mason Wood Walker Inc. in Baltimore. “But frankly, I think he is taking it a bit too far, unfortunately at stockholders’ expense,” referring to the money the company has had to spend in court to defend itself against Khan.
Dennis Roth, a health care analyst with Chesapeake Securities Research in Towson, Md., who once monitored ICN’s stock performance, also suggested the proxy battle has spotlighted important issues about its corporate operations, especially its 1991 decision to purchase ICN Galenika in Belgrade for $50 million.
That drug facility was bought less than a year after Yugoslavia fell apart and the Balkan civil war began.
“I can’t say that ICN has always done things right,” Roth said. “But at the same time, nobody could have predicted that the (war) in Yugoslavia would go on and on.
“Panic doesn’t always do things right,” he said, adding, however, that Panic is a better choice for shareholders.
Some institutional investors are expected to remain on the fence.
Bob Lange, a senior vice president with the Lindner Management Corp. in St. Louis, which holds a 150,000-share stake through one of its mutual funds, said he expects to be bombarded soon with “propaganda” from both sides.
Though Khan sold Lindner its ICN shares, Lange said he was not sure where his firm’s loyalties stand.
“We’ll have to spend time talking to both parties and discount about 90% of what each says about the other,” said Lange, adding that the battle seems more a personality conflict that a business strategy.
“If you are in the mutual fund business, you will run into a lot of very strange situations,” Lange said. “I don’t recall anything else quite like this before.”
Nancy Fisher, a spokeswoman for Putnam Investment Inc. in Boston, which holds 250,000 shares, said her company has not determined which way it would vote.
Khan, who owns 120,000 shares of ICN stock, was stymied from taking any action on his proxy idea for six months by a New York federal judge, who ordered him not to solicit stockholders while the judge considered a $75-million lawsuit ICN filed against him.
That lawsuit, which accuses Kahn of violating racketeering laws, is still pending before U.S. District Judge John Sprizzo in New York. A hearing is set for Friday, but Burns declined to say what the company’s actions would be.
Khan has nominated a six-member slate to sit with him on the board if he is elected by shareholders. If he is successful, two seats would remain vacant.
ICN attorney Arnold I. Burns said that Kahn’s proposed board slate was inferior to the existing directors. The current ICN board includes a former U.S. senator, a former California lieutenant governor, a former UCLA chemist and--beginning this week--a Nobel Prize winner.
Roger Guillemin, a director at Scripps Institute in La Jolla who won the Nobel Prize for medicine in 1977, was elected this week in an apparent attempt to bolster the image of the current ICN board, analysts said.
“His board does not have the experience,” Burns said.
But Howard Cooper, chief executive of Cardiac Sciences Inc. in Irvine and one of the proposed Khan board members, said that he has had years of corporate governing experience and sits on the boards of two medical companies: Excel Technologies in New York, and Cardiac Sciences, which he founded almost two years ago.
He was also president and chief executive of Trimedyne Inc. from 1988 to 1991, an Irvine company that makes medical laser instruments, until he started up his Cardiac Sciences, which is developing a portable heart beat stabilizer.
“I think (Burns) is wrong,” Cooper said. “My background and experience speaks for itself.”
Profile: Milan Panic
Founder and chairman: ICN Pharmaceuticals, Costa Mesa
Age: 63
Background: Born in Belgrade, Yugoslavia, and immigrated to the United States in 1956. Founded ICN in 1960 and built it into a $1-billion empire. Took a leave of absence in July, 1992, to serve as prime minister of Yugoslavia, but returned in March, 1993, after losing an election to Serbian President Slobodan Milosevic.
Compensation: In 1991 he received $6.1 million, making him Orange County’s highest compensated executive that year.
Source: Times reports, Bloomberg Business News
Los Angeles Times
Profile: Rafi M. Khan
Age: 43
Position: Stockbroker at Desert Mountain Securities, Phoenix.
Background: Former broker at Beverly Hills firm Reynolds Kendrick Stratton. Waging a proxy battle to remove Milan Panic as chairman of ICN Pharmaceuticals Inc., and replace its current board of directors.
Lawsuit: In April, ICN filed suit against Kahn, accusing him of insider trading, racketeering and violating his fiduciary responsibilities when he was an institutional underwriter for the company.
Source: Times reports
Los Angeles Times
