There’s an old-fashioned corporate donnybrook going on down at Milan Panic’s always-controversial ICN Pharmaceuticals Inc. in Costa Mesa. And this is a wacky one, even by Southern California standards, with high-profile Angelenos battling for open board seats.
The 40-year-old ICN has become a serious business, developing and selling drugs worldwide, and has seen its market cap hit $2 billion as a result. But its stock has traveled south since 1998, cut in half from a zenith of $50 a share.
That downward drift has raised the ire of a minority group of shareholders, who contend that ICN could be worth a lot more if the drug outfit was restructured split up, even as the “influence” of Panic, its 70-year-old chairman and CEO, is radically reduced.
In one of the less diplomatic statements probably ever filed with the Securities and Exchange Commission, the dissident slate said, “Our opinion is that the market’s persistent undervaluation of ICN results directly from ICN’s corporate structure which leaves investors in ICN exposed to Eastern Europe risk and from a lack of confidence in the leadership of ICN’s founder and Chairman, Milan Panic. We also believe that the incumbent board is not sufficiently independent of Mr. Panic and has not adequately represented stockholders’ interests. … We are of the view that the correct solution … is to divide ICN into three completely separate companies, each of which is independently managed and has a truly independent board of directors with a much reduced role for Mr. Panic.”
The dissidents who control almost 5 percent of ICN stock have proposed a rival slate of directors for the three board seats that are up for election at the company’s annual meeting, to be held May 30. ICN’s board has 14 members.
“Yes, it’s only three seats but it is part of a long-term effort to win control of the company,” said one insider.
Panic has not taken kindly to his new rivals, alleging in a press release issued April 3 that one member of the dissident slate has “been involved in kickbacks, insider trading and political corruption,” and promising an investigation into the backgrounds of dissident slate members. That release was followed on April 16 by a second Panic-issued press release, retracting the statements.
As usual, there is lot more controversy swirling around Panic. ICN Pharmaceuticals itself is enduring a five-year-long federal grand jury investigation on insider trading practices, and is currently fighting a civil lawsuit filed by the SEC in 1999. However, it should be noted that the grand jury recently decided not to indict any ICN officials, and the SEC recently dropped certain insider trading charges against Panic, opting instead to go forward only with charges that Panic made overly positive statements about ICN’s future back in 1995.
A call to ICN was not returned last week.
Adding to the color, Panic is the same Panic who was prime minister of Yugoslavia from 1992 through 1993, during a leave of absence from ICN, which he founded in 1960.
Meanwhile, one insider was a bit bemused by the prospect of prominent Angelenos vying against each other for ICN board seats. Panic’s nominees include Ray Irani, chairman and chief executive of oil giant Occidental Petroleum Corp.; Kim Campbell, former Canadian prime minister, now Canadian consul general in Los Angeles; and Charles Manatt, the big Westside lawyer.
“What do these guys have in common with Panic?” asked one figure close to the boardroom battle.
As colorful as Panic’s proposed slate of directors are, they are perhaps outdone by existing ICN board members, who include Norman Barker Jr., 77, the former First Interstate Bank chairman; Birch Bayh, 72, the former U.S. Senator from Indiana; and Weldon Jolley and Roberts Smith, who both have been board members since 1960. Jolley and Smith’s more than 80 years combined service on the board is probably some sort of record for a Southern California publicly held company.
The vote on the dissident slate is being watched by institutional investors in ICN, who may feel time is ripe for a change at the company.
Small Caps Dwindle
For investors of an academic bent, the doings of Santa Monica-based Dimensional Fund Advisers Inc. have always been of keen interest. So it’s worth noting when the $35 billion money management shop sometimes referred to as the “University of Chicago, Graduate School of Business, Beachside Branch” due to the influence of the school’s financial investment theoreticians in its board and operations changes some of its practices.
Since 1981, DFA has been known for such funds as DFA 9-10, which invest in small-cap companies. Indeed, “9-10” refers those companies in the bottom 20 percent of New York Stock Exchange listings, in terms of market capitalization (the top 20 percent would be 1-2).
Over the long run, DFA holds that riskier small-cap stocks, as a group, should outperform safer large-cap stocks, as risk and reward are usually financial Siamese twins.
It turns out that the bottom 20 percent of names listed on the NYSE were getting tinier in relation to the overall market. Why? A lot of mid-sized companies just stay on the Nasdaq these days, decreasing the breadth of the NYSE. NYSE blue chips have also swelled in market capitalization, accounting for a greater share of total market capitalization. DFA thus trimmed its selection criteria for the 9-10 fund, to capture those smallest public companies that together make up 4 percent of total U.S. market capitalization.
Of course, the last couple decades have been tough on DFA’s small-cap theory, as blue chips rallied and rallied again.
Quick Takes
Struggling Imperial Credit Industries Inc., the Torrance-based business lender, is fighting de-listing by Nasdaq. Its share price, around 60 cents as of last week, has sunk below Nasdaq minimums, but ICII said it has a recapitalization plan in the works. Marina del Rey-based Scheid Vineyards Inc., a small vintner and bottler of wine, is moving its headquarters to Salinas to be closer to its producing acreage in Monterey County. Scheid went public at $10 a share in 1997, but was trading last week in the $3-a-share range.
Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. His new book, “The Pied Pipers of Wall Street: How Analysts Sell You Down the River,” Bloomberg Press, will be published in May. He can be reached at [email protected].
