Carl Icahn has been waiting a long time for this. After years of controversy over his stewardship, Howard Solomon will retire as ceo of Forest Laboratories by the end of the year, and he will relinquish his role as chairman by the time the drugmaker holds its annual meeting in 2014. Meanwhile, a committee has been appointed to choose a successor. He will, however, remain a director.
The move comes after Solomon, who is 85 and has been ceo since 1977, has had a decidedly mixed tenure. On one hand, he helped build the drugmaker into a large purveyor of medicines, but more recently, he presided over setbacks that prompted corporate raider Carl Icahn to attack his leadership and successfully place a representative on the Forest board after accumulating 9 percent of the stock.
A key question now is whether this change will prompt Icahn to move for a sale of the drugmaker. "We think he is likely to do so as the current interest rate environment may not persist until the next window of opportunity, two to three years after the next ceo takes office," writes Sanford Bernstein analyst Ronny Gal in a research note. "There is an open question whether Icahn will actually succeed in pushing this agenda, likely depending on whether Solomon supports the idea, which is a possibility given that he owns a lot of shares. At any rate, we expect the question will likely be raised."
The backdrop for Icahn's actions began three years ago, when Forest pleaded guilty to obstruction of justice, distributing an unapproved drug and illegally promoting two other medicines. The drugmaker paid $313 million as part of a settlement that included $164 million in criminal penalties. The illegal marketing involved two of its best-known medicines – the Celexa and Lexapro antidepressants (see this).
The infractions prompted the US Department of Health & Human Services to seek to exclude Solomon from participating in contracts with federal healthcare programs, a move that would have, effectively, precluded Forest from doing business with Medicaid and Medicare. The feds later backed down, though, thanks, in part, to lobbying from US Senator Chuck Schumer, according to sources (read here).
The episode spurred Icahn to begin accumulating Forest (FRX) shares and seeking to oust Solomon, who he accused of being a sleepy and out of touch ceo who is protected by a cadre of “loyal buddies” and has been angling to have his son succeed him in the c-suite. He also took a shot at David Solomon by saying his only experience involved promoting movies (back story).
Sources familiar with the company have long indicated that the younger Solomon is a prime choice to succeed his father. Whether that occurs in light of recent developments remains to be seen. Not surprisingly, there was no mention of his son in the retirement announcement this morning. Forest was careful to note that the Spencer Stuart executive search firm was retained to help find candidates. We asked Icahn for comment and will update you accordingly.
“I recognize that the time has come for me to retire from the full time responsibility of running Forest Laboratories. I will be 86 this August and I think the company is entitled to the rigorous assurances of continuity that a younger chief executive can provide. I have agreed to serve Forest as an advisor and, if elected, as a director for the next several years,” the older Solomon said in a statement.
As Gal writes: "Forest is now in for a 'tough slog' as it works its way out of the Lexapro and upcoming Namenda patent cliff and the debate has gotten contentious. Certainly at age 86, Solomon may have limited appetite for taking on this transition.
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