Inside Amylin's Anti-Icahn Suicide Pact
Amylin has adopted a financial suicide pact which, in the company’s own words, may bankrupt the company if dissident investors Carl Icahn and Eastbourne Capital get a majority of directors elected at the May 27 shareholder meeting.
The pact is described in a lawsuit brought by a San Antonio pension fund; the suit is supported by Eastbourne. (The suit is also a rare example of something written by a lawyer that’s more enlightening of the Amylin management battle than the regular media coverage.)
The suit claims that in 2007, the Amylin board adopted a “poison pill”: If a majority of the board is replaced it triggers an accelerated debt payment schedule in which $900 million will become due immediately. That’s half the market value of the company, the suit says.
The company’s letter to shareholders says that if control of the board changes and the debt payments are triggered:
We may not have the liquidity or financial resources to do so at the times required or at all.
The suit claims that the poison pill can be negated if the board votes to allow Icahn and Eastbourne’s director slates to be considered.
The suit highlights the fascinating chess game going on between Icahn, Eastbourne and Amylin. Back in January, disgruntled that Amylin’s stock had fallen from a high of $53.25 to just $5.50, Icahn and Eastbourne announced separate and ostensibly competing slates for the board of directors, five each.
Both companies want to see a new board constituted for similar reasons. They believe Amylin’s handling of diabetes drug Byetta has been seriously flawed and they want to consider an acquisition of the company (which would boost the price of the stock they hold).
The problem is that with both Icahn and Eastbourne nominating a slate of five, if just seven of their 10 nominees are elected they get control of the company — and the debt poison pill is triggered. If Eastbourne or Icahn had acted alone they could have been completely successful and perhaps avoided the poison pill. So the Amylin board has successfully divided its enemies against themselves, and may yet conquer.
Amylin stock is currently trading at $12-ish, based on good results in a study of a once-a-week version of Byetta.
The suit also contains some good gossip. Non-employee directors get more than $400,000, on average for serving on the board, whereas average director pay is $132,760.
Here are some highlights of the wealth showered upon them:
- CEO Daniel Bradbury received $4 million in total pay in 2007.
- Joseph Cook Jr. received $929,469 for being chairman of the board.
- Steven Altman received $426,792 for serving on the board.
- Ginger Graham received over $4 million as Amylin CEO and board member in 2007.
- The company has accumulated losses of $1.7 billion over the years and has never been profitable.
The company also cut 340 employees, or 16 percent of its workforce, to preserve cash, according to Bloomberg.
Who will win? Usually, incumbent boards get their way. Insurgent proxy fights mostly lose because of voter apathy. Icahn and Eastbourne did get one small victory recently: The SEC issued this largely incomprehensible ruling which allowed their separate bids to go forward.
Here is the “intimidating and misleading” proxy message that the suit claims the board sent to voters to scare them from voting for Icahn or Eastbourne:
If as a result of this potential proxy contest a majority of our Board of Directors ceases to be composed of the existing directors or other individuals approved by a majority of the existing directors, then a “change of control” under the Term Loan and a “fundamental change” under the indenture for 2007 Notes will be triggered. If triggered, the lenders under the Term Loan may terminate their commitments and accelerate our outstanding debt and the holders of our 2007 Notes may require us to repurchase the notes. We may not have the liquidity or financial resources to do so at the times required or at all.
Jim Edwards, a former managing editor of Adweek, has covered drug marketing at Brandweek for four years, and is a former Knight-Bagehot fellow at Columbia University's business and journalism schools. Follow him on Twitter or send him an email.
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