European Investor Pushes ICN to Split Into 3 Companies

A European investment group that holds a sizable stake in ICN Pharmaceuticals Inc. has proposed the Costa Mesa drug company split into three separate publicly traded companies: a research firm and two operating companies with ICN’s respective drug businesses in Europe and in North and South America.

Chief Executive Milan Panic said in an interview Wednesday that the company has approved a plan to boost its share price, but he declined to provide any details. He said the company will announce the plan today during its annual meeting with analysts at its headquarters.

The investment group, Special Situations Partners Inc., sent the proposal in a letter to Panic on Tuesday and filed it Wednesday with the Securities and Exchange Commission.

Special Situations is part of Sterling Investments, which is controlled by Tito Tettamanti, a private investor in Switzerland.

“We would like to work cooperatively to develop this proposal,” but “if progress is not made quickly, we believe that this proposal should be considered by the shareholders at the upcoming annual meeting that we understand you plan to hold in September,” Tettamanti said in the letter.

The shareholders group said two spinoffs would create three stocks worth more in the aggregate than ICN’s current shares, which rose 44 cents to $34.31 Wednesday on the New York Stock Exchange.

“We believe that a sum-of-the parts valuation in excess of $50 per ICN share is realistic,” said Tettamanti and Managing Director Eric Knight. “However, in order for this to be achieved, we believe that the different parts need to be separated.”

ICN would be left with a drug development business that would appeal to biotechnology investors without the distractions of the other units, Special Situation said.

The ventures in central and Eastern Europe, “a valuable strategic asset” not properly appreciated by the market, would be attractive to investors focused on that region, the investor said.

The medical goods supply division, meanwhile, would be a prime target for a purchase by another company looking to expand in North America, the shareholder said.

In December, the investment group met with senior ICN executives, including Panic, and suggested that the drug maker split off the Eastern European operations.

Special Situation holds 2.4 million ICN common shares, a 3.1% stake, plus options to buy 3.6 million more shares for a potential stake of 7.5%, according to the shareholders’ SEC filing.

Panic said Wednesday that the company’s board recently approved a recommendation by UBS Warburg LLC. The investment bankers were hired by ICN in February to consider “all options” for the company’s Eastern European drug unit and its medical supplies group, which sells diagnostic products and chemicals.

“They have analyzed the situation in a very short time,” Panic said. “I think their recommendation is very sound and very well done, and I believe it will unlock the stockholders’ value.”

ICN shares have gained 36% since the end of April on speculation it will sell or spin off the businesses. Despite the upswing, Panic said, “I still think that our stock is undervalued, and we are working to improve that value.”

Panic has been under pressure to act before the next shareholders’ meeting. At last year’s annual meeting in September, shareholders rejected for a second consecutive year a mandatory-retirement proposal to force Panic, the former prime minister of the rump-state of Yugoslavia, and several other directors to step down.

The proposal, submitted by ICN’s largest shareholder, Heartland Advisors of Milwaukee, called for directors to leave the board at age 70. Panic, who turned 70 in December, has weathered many challenges to his position over the years. At this year’s meeting, he faces a vote by shareholders to retain his board seat.

Eric Knight, managing director of Special Situation Partners, said Panic is particularly vulnerable now because the recent rise in ICN’s price has been ‘mostly speculative. The excitement could disappear if ICN’s proposal fails to meet the market’s expectations.”