Lilly deal to absorb ICOS is protested
Published 9:00 pm Monday, November 13, 2006
BOTHELL – A major ICOS Corp. shareholder renewed its objections to the company’s proposed acquisition Monday, saying that it hasn’t received any answer to questions about the deal.
HealthCor Management, a New York-based hedge fund, previously said it plans to vote its 3.3 million shares in ICOS against Eli Lilly &Co.’s takeover. The fund’s managers argue Lilly should pay at least $40 a share instead of the purchase price of $32 per share.
After expressing that opinion in a letter to ICOS, HealthCor’s managers contacted the biotechnology firm’s executives and offered to travel – at their own expense – to Bothell to discuss their concerns. The same offer was made again on Friday, said John Schroer, a member of HealthCor’s investment team. Repeated calls from HealthCor to ICOS, however, have gone unanswered, he said.
“We are concerned that ICOS has not directly responded to the serious issues we have raised especially in light of our repeated and unacknowledged offers to assist in the proper valuation analysis of the company,” HealthCor’s managers wrote Monday. It was the second letter relating to the ICOS deal that the fund has filed with the Securities and Exchange Commission during the past two weeks.
Schroer said he’s puzzled by the silence toward HealthCor, which is ICOS’ fifth-largest shareholder with its 5-percent stake.
“It would be fair to say that an open and productive dialog between large shareholders and the company would be very helpful to everyone,” he said.
An ICOS spokeswoman repeated Monday a statement issued after HealthCor’s first letter to the company: “The ICOS board conducted a thorough and careful review, and unanimously concluded that this transaction will deliver immediate, compelling value. We are confident that this is a very positive transaction for shareholders.”
ICOS, which grew into the largest Washington-based biotechnology company after creating the impotence drug Cialis, announced in mid-October its intention to be bought by Lilly for $2.1 billion. Lilly previously had partnered with ICOS in a joint venture to develop and market Cialis.
Assuming the acquisition takes place, Lilly has warned of “significant” cuts in ICOS’ staff of 500 in Bothell, though it has offered no specifics. It already has informed about 180 sales representatives working for ICOS that they are not needed, though they can apply for similar positions with Lilly.
In contrast, ICOS executives will receive payouts of nearly $68 million, including approximately $23 million from bonuses and stock awards to Paul Clark, ICOS’ chairman and chief executive.
Institutional Shareholder Services, an investment adviser firm, criticized the size of those payouts in a report last week that echoed some of HealthCor’s concerns.
So far, however, no other large shareholder has said it will vote against Lilly’s acquisition of ICOS. Indeed, some of ICOS’ other big shareholders also have substantial investments in Lilly.
Still, Schroer said ICOS’ leaders owe its shareholders answers to why they don’t think the company is worth more. The board of directors is supposed to look after shareholders’ interests, not management’s, he said.
“I think it’s a very fair question: How exactly are they valuing the company?” Schroer said.
Shares of ICOS were unchanged on the Nasdaq market Monday at $32.29.
Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
