ICN Dissidents Have Interim Chief Ready Should Panic Leave
By VITA REED
ICN Pharmaceuticals Inc.’s dissident shareholders say they have an interim chief executive at the ready should embattled Milan Panic step down or be abruptly forced out by incoming board members.
Robert O’Leary, a onetime chief executive of Santa Ana-based Pacificare Health Systems Inc. and an incoming ICN director, has been pegged to lead the Costa Mesa drug mak-er on an interim basis if needed, said a key institutional investor who asked not to be named.
Dissident shareholders named O’Leary to their directors slate to ensure ICN’s new board “was not handicapped or handcuffed” in case it opts to remove Panic, the investor said, or if Panic “threatens to leave if they don’t kowtow to his demands.”
O’Leary, who didn’t return inquiries, was one of three dissident candidates elected at ICN’s shareholder meeting last week. Final results won’t be ready until next week, but an initial tally showed the dissident candidates winning by a 3-to-1 margin.
A source familiar with the thinking of the incoming directors said the group plans to expedite a search for a new chief executive that’s being headed up by Korn/Ferry International. Last week, Panic sent a letter to current and incoming directors saying he will work with them on a transition, the source said.
“If we can reach an agreement on the terms of his departure, he is willing to resign,” the source said.
The apparent proxy routing is ICN’s second loss to dissident shareholders is as many years. Panic, the company’s founder, chairman and chief executive, is set to face a board where six of nine members were backed by disgruntled investors.
“We have an indication that we are getting new directors,” Panic said last week. “We live in a democratic society, and I accept that.”
Panic, a Serbian native known for his legendary combativeness, wasn’t entirely conciliatory. He said his fighting spirit “comes from bad genes” and was “a true cultural thing.”
“I will not tolerate anything that could damage the value of the company, regardless of how vicious that may be,” he said.
Ridding ICN of what disgruntled shareholders call the “the depressing effect of Milan Panic’s leadership” is a key plank. The dissidents argue that Panic’s continuing hold over ICN has kept down the drug maker’s market value. They also charge Panic has dragged his heels on a plan to split ICN into three companies. Ribapharm Inc., which made its public debut in April, still is 80%-owned by ICN, they point out.
O’Leary, who lives in Rancho Santa Fe and runs management consulting firm Sagamore Group, served as PacifiCare’s chief executive for about four months in 2000. Before that, he was chairman of San Diego-based Premier Inc., a buying group for hospitals. Earlier in his career, O’Leary was chief executive of Orange-based St. Joseph’s Health System.
When O’Leary resigned from health maintenance organization PacifiCare in October 2000, he said in a statement his skills and background were “not a good fit to address the company’s immediate priorities.”
During O’Leary’s stint as chief executive, PacifiCare saw its stock fall from around 70 in June 2000 to around 10 in October 2000 as the company struggled with a heavy reliance on Medicare and resentment from hospitals and doctors over its contracting practices.
As a new ICN director, O’Leary is set to join Richard Koppes, a former counsel at the California Public Employees Retir-ement System now at Stanford University Law School, and Randy Thur-man, chief executive of Viasys Healthcare Inc. of Conshohocken, Pa.
Viasys, Thurman’s company, has a subsidiary in Yorba Linda, Sensor-Medics Corp., which makes respiratory devices.
O’Leary, Koppes and Thurman appear to have defeated an ICN slate made up of former U.S. Sen. Birch Bayh, Abraham Cohen, a retired senior vice president at Merck & Co., and Rosemary Tomich, owner of the Hope Cattle Co.
The apparent victory came after a low-key but intense battle between dissident shareholders and ICN management. O’Leary and the other dissident candidates were backed by Franklin Mutual Advisers LLC of Short Hills, N.J., and Iridian Asset Management LLC of Westport, Conn., which collectively own some 10% of ICN.
During the campaign, Panic and ICN’s management team pounded on the themes of improved financial performance and execution of a restructuring plan, including the Ribapharm spinoff. The company said it plans to distribute its remaining stake in the company to ICN shareholders.
Panic, a former Yugoslavian prime minister, has held a strong grip over ICN for years. He founded the company in 1960 with $200 and built it, as he frequently reminded attendees at last week’s meeting, “into a billion-dollar company.”
ICN, a midsize drug maker with $800 million in 2001 revenue, counted a market value of $2.3 billion as of last week.
Panic, who fought in the Nazi resistance as an adolescent, has fended off several prior attempts to oust him. Richard Stover, an analyst with Arnhold & S. Bleichroeder Inc. of New York, said he isn’t sure how events will play out.
“That’s a good question,I don’t know the answer,” he said. “In a press release, Milan Panic said he was fully willing to work with the board and do what’s necessary.”
Beyond calling for Panic’s ouster and the distribution of Ribapharm shares, Stover said Iridian and Franklin haven’t “really outlined what’s next” now that their candidates appear to have prevailed.
“From my perspective, there is a high degree of uncertainty there,Franklin and Iridian were pretty vocal about kicking (management) out,” Stover said.
“I don’t know what the board will do,” said Tim Rankin, an assistant portfolio manager at Franklin. “We have made it clear that we want the board to quickly affect a management transition.”
Iridian and Franklin also want to see changes to the board and management of Ribapharm, he said.
“The reality is that (our slate) isn’t seated yet; the vote will not be certified for some number of days,” Rankin said.
After the shareholder meeting, Panic continued to flash combativeness, especially when asked why dissatisfied shareholders would want to remove him in view of recent financial results. ICN reported first-quarter earnings of $33.7 million, up 60%, on revenue of $245.6 million, up 23%.
“I am not enough creative intellectually (to understand that). That is (the) kindest comment I could make,” said Panic, who sported a sly grin. “Why are these people doing this? If they were promoting the stock instead of attacking management, the stock would have double the price.”
The Iridian-Franklin insurgency followed last year’s victory of a directorial slate backed by a dissident shareholders group led by Special Situations Partners Inc., a European investment firm, and Providence Capital Inc., a New York investment bank.
Ronald Fogleman, a former U.S. Air Force chief of staff, Edward Burkhardt, former chairman and chief executive of Wisconsin Central Transportation Co., and Steven Lee, chairman of Woburn, Mass.-based Poly-Medica Corp., were backed by last year’s dissidents.
Panic, 72, is no stranger to proxy fights, having fought several battles since 1994. In 1998 and 1999, disgruntled shareholders unsuccessfully took aim at him with resolutions requiring mandatory retirement at the age of 70. Those proposals each gained around 33% of shareholders’ votes in those years.