Drug Maker May Face Rival Board

An investment group says it may nominate its own slate of directors for ICN Pharmaceuticals Inc. in a move to pressure the Costa Mesa drug maker to change a planned restructuring.

Special Situation Partners Inc., which owns about 8.5% of ICN, also is talking with “several” companies that might be interested in buying pieces of ICN, Eric Knight, managing director of the investment group, said Monday in an interview.

Special Situation has held meetings with ICN since last month over ICN’s plan to split into three companies and retain a majority in each. Special Situation wants ICN, instead, to break into three unrelated companies, with Ribapharm spinning off ICN.

ICN disclosed some changes to the restructuring in a filing with the Securities and Exchange Commission last week, including the removal of ICN Chairman Milan Panic as chairman of the company’s Ribapharm hepatitis-drug unit.

Special Situation, which has been fighting ICN’s plan to sell a minority stake in Ribapharm to the public and partially spin off another unit, contends the changes aren’t sufficient. Knight said ICN’s current structure “makes it virtually impossible” to attract prospective buyers, “and what ICN has proposed [for the restructuring] is no different.”

Knight declined to name the companies with which he’s had discussions, though he said one is German and one is Swedish.

D. Larry Smith, analyst at Sutro & Co. cited Aventis SA, Novartis AG and Schering AG as companies that could be interested in ICN’s international operations.

“Any major pharmaceutical company that wanted to build distribution in Eastern Europe and Russia could probably find something of interest in the international part of ICN,” Smith said.

ICN said Monday it is proceeding with the restructuring plan. In a letter to Special Situation, the company said the plan represents the long-term interests of ICN and its shareholders.

Knight told ICN that if it becomes the target of a takeover, most stockholders would accept a price of $45 to $50 a share for the entire company, the investment group reported in a document filed with the Securities and Exchange Commission.

ICN’s shares rose 13 cents to $27.75 on Monday in New York Stock Exchange trading.

ICN’s largest shareholder, Heartland Advisors Inc., has sought to oust Panic as head of ICN’s U.S. operations and wants shareholders to elect more independent directors to the board.

“There is a general agreement among all institutional investors that if Panic were to leave, it would be a major positive to the stock,” Smith said.

Special Situation has held meetings with ICN since last month over ICN’s plan to split into three companies and retain a majority in each.

Panic reacted positively to Special Situation’s own proposal in a meeting he held with Special Situation late last month, the investment group said in its SEC filing.

ICN has defended its plan by saying, among other things, that creating separate companies through a spinoff would result in a tax rate as high as 39%, which could force some investors to sell some of their shares to pay taxes.