To the day one year after Third Point sent the missive, PDL announces spinoff. Unfortunately, more than 1.200MM in market value was squandered in one year.
AP
PDL Rises After Announcing Spinoff
Friday April 11, 5:08 pm ET
PDL BioPharma Shares Climb After Company Says It Will Split and Pay Dividend to Shareholders
NEW YORK (AP) -- PDL BioPharma shares are surging after the company said it will split up, spinning off its biotechnology assets into a new company and paying a $4.25 dividend to shareholders.
The remaining company will develop a number of antibodies in PDL's pipeline, including aclizumab, which is being tested as a treatment for multiple sclerosis, volociximab, being tested against solid tumors, and multiple myeloma treatment candidate HuLuc63.
PDL BioPharma Inc. stock gained $1.98, or 16.9 percent, to $13.69.
Susquehanna analyst Jason Kolbert said the original PDL will maintain its debts, leaving the new company in a stronger financial position. The biotechnology company will also be able to collect royalty and license payments for its heart drug Cardene and drug candidate ularitide.
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Third Point Demands that PDLI CEO Mark McDade be Terminated or Resign; Insists that Company Pursue Cost Cutting Measures and Consider Alternatives to Maximize Shareholder Value
NEW YORK, April 11 /PRNewswire/ -- Third Point LLC sent to the PDL
BioPharma Inc. (Nasdaq: PDLI) Board of Directors today the following
letter:
April 11, 2007
Mr. Mark McDade
PDL BioPharma Inc.
34801 Campus Drive
Fremont, CA 94555
CC:
Jon S. Saxe
L. Patrick Gage
Laurence Jay Korn
Karen A. Dawes
Bradford S. Goodwin
George M. Gould
Samuel Broder
Dear Mr. McDade and PDL BioPharma Board Members:
In our initial letter to you dated March 5, 2007, we expressed a
sincere and strong interest, as PDL BioPharma's ("PDLI" or the "Company")
largest shareholder, to work constructively and discreetly with management
and the Board of Directors to implement the cost-cutting and other measures
necessary to fully enhance the extraordinary value inherent within PDLI
that is currently being obscured by the Company's equally extraordinary
current levels of spending. Indeed, we are certain that you are aware that
our initial overtures have been greeted by overwhelming shareholder support
and positive Wall Street research reports. The Company's shares have also
reacted positively, rising 15%, or increasing in value by over $300mm, as a
result of our involvement - to the benefit of all shareholders. After our
first telephone calls with management in March, we were hopeful that
matters were moving in the right direction, as they agreed to retain either
the leading consulting firm that we proposed, or one of similar stature, to
analyze your excessive R&D and SG&A spending, and to seriously consider our
highly- qualified nominees to the PDLI Board of Directors.
Unfortunately, our initial optimism that we could work constructively
with management quickly faded through a series of subsequent telephone
calls with Mr. McDade, culminating in a "slap-in-the face" on Friday, April
6th, in which it became abundantly clear that Mr. McDade has no intention
of pursuing a constructive dialogue. It became apparent that the earlier
dialogue was a charade intended to stall for time, a tactic we have seen
employed many times before by underperforming CEOs. Mr. McDade's
inexplicable insouciance towards us, along with numerous negative findings
that emerged over the course of our ongoing investigation (the
"Investigation") into Mr. McDade's managerial abilities, judgment and
ethics (discussed below), led us to determine that it is in our best
interests, and those of all shareholders, to terminate discussions with Mr.
McDade.
Many fund managers who have been similarly rebuffed, and who have
detected such a deficit in talent, probity and judgment as we have come to
find in Mr. McDade, might come to the logical conclusion to "cut and run"
and decrease their positions as one major mutual fund has done according to
recent filings. Instead, we have come to a different view: we concluded
that the Board of Directors has no choice but to immediately terminate Mr.
McDade. We believe that a PDLI unencumbered by Mr. McDade's management
blunders and wasteful spending will appreciate in value considerably, and
thus we have increased our position by 1,100,000 shares and now
beneficially own 9.7% of the Company's outstanding stock.
In support of our demands for Mr. McDade's immediate termination, we
review below the content of our discussions and negotiations over the past
month and elaborate on the specific significant mismanagement and waste for
which Mr. McDade is directly culpable.
McDade's Insincerity and Disorganization
During the past month we had four separate calls with Mr. McDade in
which we repeatedly expressed our concerns regarding spending levels and
other planned strategic initiatives by the Company. In each call, we
reiterated our interest in working with him and with the Board in order to
better understand and rationalize the cost structure at PDLI and to help
realize the many valuable, currently poorly-recognized assets embedded
within the Company. From the very first conversation, we made it clear
that, as PDLI's largest shareholder by a wide margin, Board representation
would be essential, and we submitted to Mr. McDade the names of four
highly-qualified candidates for consideration. On March 30th, Mr. McDade
informed us that none of our four candidates fits the profile of what PDLI
is looking for in a Board member, but that the Board would (reluctantly)
consider one of our candidates. We replied that this was not acceptable,
and demanded that two of the other three candidates be named to the Board.
At our suggestion, and in response to his now obviously feigned interest,
we provided to Mr. McDade that very afternoon the contact information for
TWELVE references for our Board candidates - all of them senior management
or Board members of public companies with whom we've worked (and, in most
cases, served on boards with). Mr. McDade and his assistant sent follow-up
emails with questions regarding the references list. However, when we spoke
with Mr. McDade again this past Friday, he informed us that none of our
candidates is "qualified" to serve on PDLI's board. Although Mr. McDade is
dead wrong about this, what is truly galling, and what speaks directly to
Mr. McDade's lack of character, professionalism, and competence, is that
our references reported to us that Mr. McDade did not call a single one of
them to hear first-hand about the tremendous value that our candidates have
brought to shareholders by working on other public boards, both within and
outside of the biotechnology arena.
Moreover, one of our director candidates, Mr. Jason Aryeh, emailed to
Mr. McDade contact information for his references, followed up with a
confirmatory call to Mr. McDade's assistant Diana, and sent a second email
to ensure its receipt. Nonetheless, Mr. McDade claimed days later never to
have seen this important correspondence so essential to evaluating our
candidates' qualifications to join the PDLI board, and even then he did
nothing with the information it contained (despite assurances to the
contrary). How can Mr. McDade purport to effectively run a public
biotechnology company with a market capitalization of over $2 billion when
he cannot even manage his own Microsoft Outlook inbox?
It is now clear to us that we've wasted the last month attempting to
engage in a productive dialogue with Mr. McDade, while his only objective
was to buy himself more time. We've been engaged in discussions with the
Company for over a year about our concerns, and have heard management's
explanations and excuses countless times over that entire period. The
unfortunate truth is that so long as Mr. McDade remains CEO, which we
expect will not be much longer, the Company will have no intention of doing
the "right thing" by scaling back SG&A and R&D spending to economically
justifiable levels.
We also want to emphasize that during the course of our discussions
over the past month it became clear that Mr. McDade does not see the
benefits of adding representatives of the major owners of the Company to
the Board. In fact, he told us that the Board's ideal next candidate(s)
would be a late- stage development expert. We have explained to Mr. McDade
why adding shareholder representatives is vital at this point, as
management is demonstrably not effectively telling the PDLI story to the
world - as evidenced by the major disconnect between the current stock
price of PDLI and the much higher inherent asset value of the Company.
Additionally, it is obvious that PDLI needs to understand the investment
community's perspective regarding the Company's economically unjustifiable
spending. On this point, as noted earlier, we are pleased that the Company
has agreed to hire a major consulting firm immediately to undertake the
critical analysis of all of the Company's current and planned SG&A and R&D
spending, with the goal of materially cutting back on both if they are
deemed to be economically imprudent.
McDade's Taj Mahal - Massive Waste, a Shorter Commute for McDade and a
Slip for his Yacht, but a Longer Commute for Employees
There is no better example of McDade's "empire building" philosophy,
pathological selfishness and poor business judgment than his decision to
build out PDLI's absurdly large and unnecessary new corporate headquarters
(the "Taj Mahal"). It is appalling that Mr. McDade is spending nearly $100
million of our money to build out 450,000 square feet of leased space, much
of which is completely unnecessary. But what is most troubling is what this
says about his overall business judgment and qualification to continue to
run the Company. As examples:
* Mr. McDade decided to lease, and build out, the Taj Mahal (reportedly
the largest corporate lease deal, as measured in square footage, signed
in the Bay Area in 2006) despite the fact that members of PDLI's
financial team reportedly advised him that the expenditures were both
unnecessary and imprudent;
* Mr. McDade has, from the beginning of this project, apparently been
fixated on when his boat slip in the marina adjacent to the new
corporate headquarters will be ready (one would think that the CEO of a
Company, the stock price of which was down 40% last year - and the
second worst performer in the entire biotechnology index - would have
more important priorities), and
* Mr. McDade has made it clear in private that one of the key drivers
behind his decision to relocate the Company from Fremont to Redwood City
is that the new headquarters location will lead to a far shorter commute
to work for him from his home in Woodside (not only less than one-half
the mileage, but he will not have to cross any heavily-trafficked Bay
bridges to get to the new headquarters). For those unfamiliar with the
geography, below is a map detailing the pertinent locations:
(Photo: newscom.com
Although the propinquity of the Taj Mahal to McDade's home is
convenient for PDLI's imperial CEO, scores of current dedicated PDLI
employees are to be significantly inconvenienced by the move. This issue
was so significant that the Company's attorneys felt that it was an issue
that merited disclosure in the risk section of PDLI's 2006 10-K:
We believe that the move of our corporate headquarters from Fremont,
California to Redwood City, California, in the second half of 2007, may
before and for a period after the move cause employee turnover to increase
and make retaining key employees more difficult because our new
headquarters is 12 miles away from our current headquarters and on the
other side of the San Francisco Bay, which will increase the commute time
of the many employees that reside in and around Fremont, California and
the greater East Bay Area of the San Francisco Bay area.
Premium Offer Rebuffed? ... Strategic Alternatives Should be Reviewed
Immediately
We also learned from sources we deem to be reliable that PDLI received
a takeover bid from a large pharmaceutical company for more than $30 per
share (approximately 50% above the current stock price), which Mr. McDade
effectively dismissed out of hand as being grossly insufficient. While we
share the view that PDLI is significantly undervalued, we believe that due
care requires management to present all such expressions of interest to the
Board. We are not necessarily advocating a sale of the Company at this time
(although it should be carefully considered), but we believe that if such
bidding interest exists, it should be carefully weighed against the present
value of the Company in a scenario where it executes its long term
operating plan under new, better-qualified management.
In addition, we believe that the Company should examine splitting into
two publicly traded entities - one a commercial operation, and the other an
R&D company. We believe that material incremental value could be created
through such a separation and have raised this concept with Mr. McDade (not
surprisingly, given his empire-building mindset, he had not given this
structure a thought previously, and laughed dismissively - or perhaps
defensively - when we suggested it). We would be happy to share with the
Board our analysis as to why we believe that separating PDLI into two
public companies would create significant shareholder value. Finally, we
firmly believe that any deals currently being contemplated to encumber
Ularitide, or to commit the Company to further R&D spending on this
product, should be suspended while the above analyses are ongoing.
In Monday's press release announcing Max Link's resignation from the
Board, Mr. McDade again referred to "continuing to build stockholder value
by leveraging our antibody platform ...." Perhaps Mr. McDade uses a
different, more favorable, group of stock charts than we do, but ours show
that PDLI was down 40% last year; was flat in the three years from 2004 to
2006 while the biotech index gained 50% (and the stocks of PDLI's partners
flourished); and, by the way, is only up this year because the market has
reacted favorably to Third Point's involvement.
We are confident that we have the support of a majority of PDLI's
shareholders, and clearly have the support of a large number of sell-side
research analysts. Indeed, Prudential upgraded PDLI from a hold to a buy on
March 25th in a report headlined "Calls for Strategic Changes Increasing;
Could Spark Stock Rally if Implemented." Prudential's report then went on
to say:
The public pressure being applied by Third Point could lead to positive
dramatic changes in the company. The primary reason for our change of
heart is that we believe some drastic measures would have to be taken to
transform this company from a slow moving, yet costly specialty/biotech
company to a more focused biotech company that can deliver returns that
match investors' expectations.
On that same day Merrill Lynch wrote a positive report entitled "Does
Third Point have a point?" - with the answer being a resounding "yes."
Lastly we would note that we have spoken with many business development
directors from major and mid-sized pharmaceutical and biotechnology
companies, and the consistent feedback is that Third Point is correct in
its analysis of PDLI - that it is a poorly-managed company with substantial
assets. A few comments we heard from this well-respected and knowledgeable
group include:
McDade acts and spends like he runs a big pharma company, but he has none
of the infrastructure, assets or managerial ability.
PDLI has enviable assets, but they will never get the benefit of them with
McDade running the Company. He needs to be thrown out immediately.
He has consistently disappointed the Street by missing revenue and
earnings projections and development timelines. Why will it be any
different going forward?
He is an empire builder. The Company is being treated like McDade's
personal science experiment.
What PDLI needs is financial discipline and new management.
Needless to say, we agree wholeheartedly with these opinions. We are
confident that some members of PDLI's Board share our negative sentiment
towards Mr. McDade. We urge these members to speak up and take action to
dismiss him immediately. Indeed, we believe that there are several Board
members who are far more capable that Mr. McDade of managing PDLI properly
and would ask that they volunteer to serve as interim-CEO at a minimum,
while the Company reassess its spending plans and analyzes all options to
maximize value for PDLI's shareholders.
When Mr. McDade became CEO in 2002, he made a pledge to create
shareholder value. Nearly five years later he has not lived up to his
pledge. It is now time to put the valuable assets of this Company into more
capable hands, either by bringing in a high-quality CEO or selling the
assets to a larger, better-run company, before the Company's asset values
are further diminished by uncontrolled and wasteful spending under his
ineffective stewardship. Mr. McDade has said repeatedly that he serves at
the will of shareholders, and would immediately step down if shareholders
do not want him running the Company anymore. It is clear to us that a
majority of PDLI's shareholders share our views, so we therefore demand
that Mr. McDade stop hiding behind the Company's corporate defenses and
newly-instituted poison pill and live up to his word by resigning. (We
believe that we can deliver consents from a majority of the Company's
shareholders calling for Mr. McDade's resignation to prove our point.)
Also, we have high regard for the professional scientific personnel at
PDLI, and the scientific accomplishments of many PDLI Board members, and
believe that the languishing share price deprives them of opportunities to
be appropriately rewarded for their efforts.
We would be pleased to speak directly with the Board, once Mr. McDade
is terminated, to work together constructively to achieve our goal, and
your fiduciary duty, to run the Company properly in order to create maximum
value at PDLI for all stakeholders.
Sincerely,
Daniel S. Loeb
Chief Executive Officer
About Third Point LLC
Third Point LLC, founded by Daniel S. Loeb in 1995, is a registered
investment adviser based in New York with over $4.5 billion of assets under
management.
Media contact:
Steve Bruce / Shawn Pattison / Ann Taylor Reed
The Abernathy MacGregor Group
(212) 371-5999
SOURCE Third Point LLC |
