ICN Chief Suggests Alternative Plan to Break Up Firm

ICN Pharmaceuticals Inc.’s chief executive is floating an idea for spinning off two divisions completely as an alternative way to break up the Costa Mesa drug maker, a move that could appease dissident shareholders.

Milan Panic said the new plan would greatly enhance shareholder value and reduce the company’s role in the two spinoffs. Under an existing proposal, the company would still own about 80% of each division after they go public.

Panic’s latest idea, though, was met with skepticism and derision by some of the dissident ICN shareholders, who previously have tried to oust him or reduce the role of the 70-year-old founder.

“I think it’s a step in the right direction, but only if he does it. And that’s a big ‘if,’ ” said Eric Knight, managing director of Special Situations Partners Inc. in the Cayman Islands, which owns a 4% stake in ICN. “He’s going to have to do more than make promises. He’s going to have to deliver.”

Knight said Panic is a man “capable of changing his mind 10 times.”

Under a reorganization proposed in June, ICN would shed 20% of its European and Pacific Rim operation, to be called ICN International, and a like amount of its research arm, which would be called Ribapharm Inc. The Orange County company would own the rest of the stock of both companies.

Analysts believe ICN’s parts are worth more than the whole. Richard Stover at Arnhold & S. Bleichroeder investment firm in New York said Ribapharm alone could be worth $2.5 billion to $4 billion, more than ICN’s market capitalization of $2.3 billion, based on Friday’s closing price of $29.13 a share. ICN shareholders stand to profit handsomely once it is spun out to them, he said.

The stock has been on the upswing this year, gaining 15% since January. But investors and analysts said they see that return as disappointing in light of the company’s strong sales and profit growth in the first two quarters.

Originally, Panic was going to be chairman of all three units, but he said in August that he would not head up Ribapharm, a unit that also would hold the patent to ribavirin, an antiviral drug that helps treat hepatitis C.

This week, Panic said in an interview that it is “unlikely” he would become chairman of ICN International either.

“I think at my age I should be limiting my work rather than increasing it,” Panic said.

In the interview, Panic said ICN would change the structure of the reorganization by giving shareholders the remaining stakes in the form of stock dividends. He did not say when the change could occur.

But that sort of spinoff creates big tax burdens both for the company and the shareholders, said one dissident, who asked to remain anonymous. He contends that Panic is making proposals in bad faith and that shareholders would never approve such a plan.

Panic said that distributing stakes in the new companies as dividends would be subject to tax considerations, as well as approvals from shareholders and the Securities and Exchange Commission.

“That shows my commitment to shareholder value,” Panic said.

Earlier this week, Special Situations said it may nominate its own slate of directors for ICN to try to push through its proposal for restructuring ICN. The investor wants ICN to break into three unrelated companies to boost the stock price. Panic recently led Special Situations executives to believe that he would adopt their proposal, Knight said, but he later spurned it.

Panic said this week that he is not trying to placate shareholders with his latest plan. He said he is, instead, following recommendations made by UBS Warburg LLC, an investment banker ICN hired for advice.