Elan bid defence under attack from former director

Elan dismisses claims by Jack Schuler whom it calls ‘disgruntled’ as Royalty challenges Takeover Panel ruling

Former Elan board member Jack Schuler has questioned the experience  of the drug company’s management. Photo: Bloomberg

Former Elan board member Jack Schuler has questioned the experience of the drug company’s management. Photo: Bloomberg

Wed, Jun 12, 2013, 16:09

Elan has dismissed criticism from a former director who questioned the ability and competence of the board to transform itself into a royalties driven business.

Former Abbott Labs president Jack Schuler said a series of transactions Elan wants shareholders to approve at an extraordinary general meeting on Monday were “value destructive”.

The transactions are at the centre of a dispute between Elan and Royalty Pharma which has made a $6.7 billion bid for the business. It will be forced to withdraw that offer if shareholders approve the transactions.

Mr Schuler led a high profile campaign against Elan’s management and board in 2009 before being appointed to the company as a director. He left just over a year later.

“Jack Schuler was a disgruntled director who left the board after Elan was forced to issue proceedings against him in 2010 which raised serious issues concerning his conduct,” the company said in a statement.

“These proceedings were filed in open court and are a matter of public record. Mr Schuler departed the Elan board following the issuance of these proceeding.”

At the time, Elan notified the Securities and Exchange Commission (SEC) decided of “issues” in relation to Mr Schuler’s behaviour as a director.

However, in February 2011, the SEC decided that it did not “intend to recommend any enforcement action”.

Michael Gordon of Sidley Austin, Mr Schuler’s lawyer, said this evening that he had subsequnetly filed a claim for costs incurred in the SEC investigation in fees and expenses amounting to $253,240.30, which he said Elan had paid.

The company noted that a number of directors, who had since joined the board, were “well-established in the industry, including our chairman [Bob Ingram], former vice-chairman GSK [GlaxoSmithKline] and Dr Andrew Von Eschenbach, former commissioner of the FDA”.

In a letter to the Financial Times, Mr Schuler said that, in his view, the board and management had very limited experience in doing deals and were not competent to run a business.

This latter claim was one he made also back in 2009. However, after his accession to the board, Mr Schuler voted with the board to accept the findings of a report that backed corporate governance at the company.

Mr Schuler said in his letter he was “shocked” at the actions Elan’s directors had undertaken in connection with the Royalty Pharma bid.

“The series of acquisition transactions that Elan has undertaken in the last month appear to be an attempt to frustrate Royalty Pharma from being able to succeed with their offer. The transactions are clearly value destructive and not in the best interests of Elan or its shareholders.”

The transactions in question include the $1 billion acquisition of rights to royalties in drugs being developed by Theravance Therapeutics; the acquisition of Austrian specialty pharma group AOP Orphan, the spin-off of the company’s last remaining drug development programme, ELND-005; and a $200 million share buyback.

Mr Schuler wrote that the transactions had been “done in haste” and questioned whether there had been “much board analysis or consideration”.

Royalty Pharma has meanwhile challenged a decision by the Irish Takeover Panel that it will have to withdraw its $6.7 billion offer for Elan if any of four resolutions before Monday’s extraordinary general meeting of shareholders is approved.

Royalty said it was concerned the takeover panel’s ruling would “deprive” Elan shareholders of the chance to consider its improved offer of $13 a share, plus a contingent value right worth up to $2.50 per share.

Elan yesterday urged shareholders to “protect the value of their investment” in Elan by rejecting the putative acquirer’s “grossly inadequate offer”.

The Irish drug firm has also called on its shareholders to vote for all four resolutions in connection with its forthcoming egm.