After rejection by shareholders of a “poison pill” plan approved by its directors, Obagi Medical Products Inc. is expected to remain under scrutiny by shareholders this year.
The Long Beach maker of prescription-strength skin care products recently reported a better-than-expected first quarter, but its tumultuous history, mediocre sales growth and perceived unwillingness to entertain suitors has angered activist investors.
Criticism intensified after Dec. 23 when the board approved a shareholder rights plan, also known as a poison pill, which discourages unfriendly takeovers by flooding the market with shares. Shareholders rejected the poison pill in a vote June 6; the act should make a takeover easier.
Obagi was a pioneer in the late 1980s in marketing prescription-strength over-the-counter skin care products exclusively through physicians’ offices. Other companies have since jumped into that market, including a startup launched by Obagi Medical’s founder, Dr. Zein Obagi.
His high-profile fallout with the company resulted in an expensive settlement last year. Since then, Medicis Pharmaceutical Corp., a Scottsdale, Ariz., pharmaceutical company, is among several companies considered potential bidders for Obagi.
J. Daniel Plants, managing partner at Voce Capital Management LLC, a San Francisco firm that took an undisclosed stake in Obagi last year, led the campaign against the poison pill.
“We got involved in this company because it is a very attractive franchise – women love the products and doctors love the traffic it brings into their offices,” Plants said. “But the board and management live in a bubble and need to uphold their fiduciary responsibility to shareholders.”
The company did not return calls for comment by the Business Journal. But in conference calls, executives have touted a variety of initiatives to rev up sales, which grew 1.2 percent its last fiscal year to $114 million.
Despite the problems, the stock price has risen 35 percent since the beginning of the year. Shares closed at $13.71 on June 13. A half-dozen analysts cover the company, according to Bloomberg News, with three having “neutral” ratings and the rest “buys.”
Analyst Annabel Samimy at Stifel Nicolaus in New York noted that the company promised in the past to look at strategic alternatives and entertain buyout offers.
“But they’ve done nothing of the sort, and then they approved this (poison pill),” said Samimy, who has a “neutral” rating.
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