Markets

The War for Amylin: Lilly Not Interested; Icahn Calls the Company a "Dictatorship"

By Jim Edwards

Updated on: April 28, 2009 / 3:23 PM EDT / MoneyWatch

Eli Lilly CEO John Lechleiter complicated the battle for Amylin today by telling Reuters he was not interested in buying the company.

It was widely suspected that investor Carl Icahn, who is in a three-way war for control of Amylin's board of directors, wants to dress up Amylin for a sale to Lilly. Icahn recently called Amylin a "dictatorship" because it refused to listent to his demands (see below). Lilly already has a joint venture with Amylin on its diabetes drug Byetta, and Lechleiter said:

We like the relationship just the way it is now.

That hurts Icahn's case because, assuming he did win control of Amylin, the most obvious buyer on the market has ruled itself out. Icahn would have to find someone else willing to live as a partner with Lilly.

Amylin's board is fighting that move by Icahn and Eastbourne Capital; a proxy vote will be decided May 27. Since BNET last checked in -- when we noted that Amylin had given its bosses nice pay raises even though the company's losses increased 50 percent -- the three sides have been exchanging impolite letters and press releases, hoping to get Amylin shareholders to vote their way in the board elections. Here's a sampling:

From Eastbourne, April 24: It is our strong belief that the upcoming product launch of Exenatide Once-Weekly is Amylin's best chance for commercial success. We have no confidence that the current Board as a group can provide the leadership to successfully deliver on the Company's commercial capabilities at this critical juncture.

From Amylin, April 24: Over the course of our conversations with Mr. Icahn and Eastbourne, it has become abundantly clear that their goal is the sale of Amylin. We strongly believe that this agenda is not in the best interests of Amylin's shareholders. Your Board and management believe that a sale of the Company in the near-term would undervalue the return on investment we believe shareholders will realize as a result of the approval and launch of exenatide once weekly.

Consistent with his history in several recent and current proxy fights, Mr. Icahn wants to employ a "cookie-cutter" approach to slashing costs, without any regard to the specific nature of Amylin's business. His one-size-fits-all methodology is exemplified by his identifying insurance and logistics as potential areas for additional savings, neither of which are significant components of Amylin's cost structure. His actions would undermine our efforts to prepare for and launch exenatide once weekly.

Mr. Icahn and Eastbourne show a serious lack of understanding of Amylin's business and the value-enhancing opportunities that the Company has created in the marketplace. The Company's future opportunity is tied directly to the FDA approval for and successful launch of exenatide once weekly.

From Amylin, April 23: The Amylin Board of Directors welcomes continued three-way dialogue with Carl Icahn and Eastbourne Capital Management, L.L.C. to find a path to end a proxy contest. We hope that we can reach a resolution that will be in the best interests of all Amylin shareholders.

From Icahn, April 23: Dear Jim [Wilson, Amylin's lead director]:

If you are really serious about settling what you consider a debilitating proxy contest, I believe it is mandatory for you to take the necessary action to allow Eastbourne and myself to talk without the threat of your poison pill and Section 203 preventing these discussions.

[The "poison pill" was a provision that Amylin installed to prevent a takeover of its board; it would trigger an immediate and crippling debt repayment of $900 million if control of the board changed.]

It is almost absurd that I and Eastbourne, separately, have had to ask you a number of times during last week and the week before to get permission to have these talks. As I have said, even in a dictatorship parties that disagree with the ruling regime are allowed to talk to each other. But not at Amylin.

I sincerely believe that as a result of these discussions and subsequent discussions among the three of us, there will be enough common ground to resolve the matter. What exactly are you afraid of? The alternative is for the Company and its stockholders to continue to be distracted because of the inexplicable intransigence of the current Board which continues to evidence itself in so many ways, e.g. the poison pill, the poison puts, and the failure to heed the views of your co-founder, Howard E. Greene, Jr., regarding Joseph Cook's board seat.

I look forward to your prompt response.

Sincerely,

Carl Icahn

From Amylin, April 22: Jim Wilson, Amylin's lead independent director, confirmed that he and representatives of Amylin participated in a teleconference with representatives of the Icahn group and Eastbourne Capital Management, L.L.C. to discuss settlement options with respect to the proxy contest and that no agreement was reached.