Major Shareholder Presses ICN for Executive Changes

COSTA MESA — ICN Pharmaceuticals Inc.’s largest shareholder, bridling over the Costa Mesa drug company’s lackluster stock price, is stepping up the pressure for executive changes, including the eventual retirement of controversial Chairman Milan Panic.

Last week, William J. Nasgovitz, president of Heartland Advisors, which owns a nearly 15% stake in ICN, fired off a letter urging the company’s board to force Panic, 67, to retire when he turns 70. Nasgovitz also had voted against four of the company’s directors who stood for reelection at its annual meeting last month.

ICN stock closed Wednesday at $22.675 a share in New York Stock Exchange trading, down 12.5 cents for the day. Analysts say that a drug company with such rapid growth, high profitability and a strong market position in Eastern Europe should trade at least $5 to $10 higher.

The company, in a statement issued Wednesday, said it also “is frustrated by the performance of the stock.” Nasgovitz’s “suggestions” will be taken “under advisement” by the board, the statement said. The company didn’t elaborate.

A source close to discussions between Nasgovitz and the company said that board members seem receptive to his recommendations, but that changes aren’t likely any time soon.

Nasgovitz’s letter blamed the stock’s poor showing on investors’ mistrust of management’s ability to stay focused on a plan for the company’s future success. But he also clearly faulted the board, saying that “there is a lack of confidence in the independence of the board of directors to act in the best interests of shareholders.”

Among other things, the letter cited the company’s settlement of two sexual harassment lawsuits against Panic by former employees. “Since two harassment claims have already been settled at shareholders’ expense for undisclosed amounts, who is looking after the interests of shareholders?” the letter said.

Nasgovitz couldn’t be reached for comment.

Other investors with smaller stakes have called for changes in the past but without success. However, analysts said Nasgovitz may stand a better chance because Milwaukee-based Heartland holds such a sizable chunk and is highly regarded in investment circles.

Nasgovitz asked the board to require the company’s chief executive and its directors to retire at age 70. Five directors on the 15-member board are over 70 and Panic will be 68 in December.

He also wants the one company-slated director he voted for last month to head a new committee to nominate candidates to the board. One source said the director, Washington attorney Charles Manatt, has become increasingly critical of Panic’s management.

Manatt and the four directors that Nasgovitz opposed were elected at the annual meeting.

Panic is under investigation by federal prosecutors in Los Angeles for alleged securities violations. The company, which is cooperating in the investigation, denies all wrongdoing. Panic has also been the target of four sexual harassment suits, three by former employees and one by a current employee.

The company and Panic settled two of the cases, admitting no wrongdoing. They deny allegations in the other cases.

In 1993, investor Rafi Khan launched a proxy battle against ICN management but became embroiled in litigation with the company and failed to gather enough votes to install his own slate of directors.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Measuring Up

ICN’s stock is 39% higher than when the company was formed in late 1994. But the stock, which trades on the New York Stock Exchange, underperforms that exchange’s industrial index--up 84% for the same period.

Stock Price

1994: $16.33

1997: Wednesday’s close: $22.63

NYSE Industrial Index

1994

4th qtr. 318.10 1997: Wednesday’s close: 584.97

Source: Bloomberg News; Researched by JANICE L. JONES/Los Angeles Times