Management by Suicide Pact: Elan CEO Fends Off Dissident Investors With Poison Pills
Elan (ELN) CEO Kelly Martin has won his latest civil war: an "independent" probe -- conducted by lawyers he hired -- has cleared his management team of having any conflicts of interests in deals Elan made with two other drug companies, a brokerage and a hedge fund, despite the fact that Elan executives were shareholders, executives or had family members at those institutions.
With a clean bill of health, Elan's stock ought to be rebounding nicely, along with all other drug stocks, right? Wrong: ELN remains unaffected, stuck below $5 when it once soared as high as $65. Here's a chart showing Martin's achievements for his investors over the last five years:
Two of the three dissident Elan board members will resign; Martin has referred one of them to the SEC for murky reasons that appear to be something to do with an insider trading accusation. The third, investor Ib Sonderby, continues to wage war against Martin on his blog, SaveElan.com.
This is what management by suicide pact looks like. If Martin were the CEO at any other company he would have been forced out long ago. But Martin has managed to riddle Elan with so many "poison pills" -- contracts with other companies that give them possession of Elan's best assets in the event of a change of control -- that any investor who attempts to unlock the value in Elan by selling the company or its products will by definition destroy it, and his or her own stake within Elan.
When Sonderby began his campaign in July, I predicted that he would have the same amount of success as former Abbott Labs (ABT) COO Jack Schuler, who forced his way onto the board for similar reasons back in February 2009. Schuler is one of the board members who has promised to resign. He's also the guy Martin has asked the SEC to investigate. Schuler leaves Elan with the Martin regime fully intact. Unless Sonderby has some new tricks up his sleeve, he can expect a similar fate.
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