May 26, 2009 / 3:33 PM / in 8 years

UPDATE 1-Biovail, Melnyk reach settlement in board battle

* Founder Eugene Melnyk to support company’s board

* Biovail to appoint one of Melnyk’s choices

* Shares up 2.4 percent at C$14.73 (Adds analyst comments, updates share price; in U.S. dollars unless noted)

By Scott Anderson

TORONTO, May 26 (Reuters) - Biovail Corp BVF.TO reached an agreement with its founder Eugene Melnyk that will help avoid another proxy battle like the one that disrupted its shareholder meeting a year ago.

Melnyk, the company’s largest shareholder, agreed to back the company’s nominees to the board. He also promised not to participate in a proxy battle or make a shareholder proposal at any time until after the 2010 shareholder meeting.

He will also withdraw two proposed nominees he was trying to get named to the board.

In exchange, Canada’s biggest publicly traded drug company, agreed to appoint Frank Potter, one of Melnyk’s choices, to the board and audit committee.

The company’s annual meeting is scheduled for May 28 in Toronto.

Melnyk, the millionaire owner of the Ottawa Senators National Hockey League team, had battled with Biovail management over plans to shift the company’s emphasis to new treatments for disorders of the central nervous system.

Instead, he pushed for an emphasis on the company’s product pipeline, including a return to “difficult to manufacture” generic drugs, as well as acquiring more products and technologies.

Earlier this year, Melnyk had called for a special shareholders meeting to vote on two board nominees backed by him and on changes to the company’s governance.

Melnyk, who stepped down as executive chairman in 2007, was seeking a vote on resolutions that he said would bring the company’s corporate practice in line with recommendations from the Canadian Coalition of Good Governance.

“Our proposals in February 2009 for corporate governance reform and our proposed nomination of two world-class individuals for Biovail’s board of directors were made solely to benefit all of the shareholders of the company I founded,” Melnyk said in a release issued Monday night.

“I believe the agreement we reached with the company will do just that,” he said.

“We are very pleased that we can now move forward and focus on the continued successful implementation of our new strategic focus through next year’s AGM,” Douglas Squires, Biovail’s chairman, said in a release issued late on Monday.

Both Biovail and Melnyk, who holds about 12 percent of the outstanding shares, refused further comment.

The battle over the strategic direction of the drug company has gone on for more than a year.

Last year, Melnyk pulled his own block of about 18.8 million shares in advance of the annual meeting in an attempt to have it postponed so he could build more support for his choice of directors and business plan.

That prompted a summer of legal wrangling that was not resolved until early August.

Since then, Biovail has pushed ahead with its mandate for treatments of the central nervous system.

It has also acquired a string of products and companies, moves that some have criticized for being ill-timed and too expensive .

Biovail shares have climbed 25 percent in the past year since it unveiled the new strategy and were up 2.4 percent at C$14.73 on the Toronto Stock Exchange on Tuesday morning.

“There’s not that many companies that have been able to make that kind of turnaround by making pretty good product acquisitions,” said Claude Camire, an analyst at Paradigm Capital.

“So he (Melnyk) can probably see that the strategy wasn’t that bad and, overall, there probably wasn’t a whole lot of point for anything else.”

Earlier this year, Melnyk agreed to pay $1 million in a settlement of a case with U.S. Securities and Exchange Commission over Biovail’s accounting practices. A hearing resumes late next month with the Ontario Securities Commission over his involvement in the firm’s accounting and disclosure practices, dating back to 2001.

Three other former executives have already settled with the OSC.

$1=$1.12 Canadian Reporting by Scott Anderson; editing by Rob Wilson

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