Investor Alert

March 17, 2011, 10:55 a.m. EDT

Actelion Is Pressured Over Strategy

By Goran Mijuk

ZURICH—U.K. investment firm Elliott Advisors Ltd. on Thursday accelerated efforts for a major board shakeup at Actelion Ltd. by naming six new board members who should redefine the Swiss firm's strategy, and called for a probe to find whether Europe's largest biotechnology company has received a takeover bid.

Elliott Advisors—one of Actelion's largest shareholders with a more than 5% stake—for months has campaigned for a boardroom overhaul and a strategic rethink that could end up in a sale of Actelion. Elliott has proposed former Novartis (NYS:NVS) AG director James Shannon should take over the chairman role. He should replace Rob Cawthorn , whom Elliott criticized for pursuing too risky a strategy.

"There is value in the company," said proposed chairman Mr. Shannon. "Actelion has a sound franchise management, its early-stage pipeline has value and it has cash that can be used for mergers and acquisitions. But there is also a lot of cost in the company, which has a high research and development spending. Hence a proper evaluation of Actelion is needed."

The other proposed members are Peter Allen , a former financial controller at L'Oreal (PAR:FR:OR) SA, Andreas Haerfstrand , a former manager at Serono, and Robert Hock , a former director at Lehman Brothers Holdings Inc. Elliott also named Elmar Schnee , who was an executive board member at Merck (FRA:DE:MRK) KGaA, and Hans-Christian Semmler , a former chief executive of Germany-based Haupt Pharma.

Actelion said it has taken note of Elliott Advisors' requests and will publish the full list of agenda items in due time, but didn't comment further about the investment firm's demands. Actelion, which is currently on a investor roadshow, recently said it received strong support for its strategy from some shareholders.

Elliott said it will organize several meetings in Zurich, London and New York over the next few weeks to introduce the new members to interested Actelion shareholders.

"We have been clear from the beginning that we have deep concerns about Actelion's current 'wait and see' strategy," Elliott Advisors said. "By adding these independent directors to strengthen the board, we are confident that the right debate will happen to de-risk the company for all stakeholders, including employees, through the rigorous analysis of the options facing it."

Actelion shareholders are scheduled to vote on the proposals at the company's annual general meeting on May 5 in Basel. Elliott also asked that board members Jean-Paul Clozel and Juhani Anttila step down. The official agenda items will be published several weeks ahead of the meeting.

Actelion's board currently consists of nine members. Among them are several pharmaceutical and chemicals specialists such as Werner Henrich , a Roche Holding (SWX:CH:ROG) AG veteran, and Michael Jacobi , a former chief financial officer of Ciba Specialty Chemicals.

Besides pushing for a boardroom shakeup, Elliott said it wants to launch a special investigation or at least receive information on whether Actelion has been approached by other companies about a takeover. Actelion has previously stated it hasn't received any offer but that it was in constant talks with industry peers.

Actelion has been considered a takeover target since last autumn after a series of drug-development failures raised concerns about its future. Such worries have intensified as the company's only blockbuster hypertension drug, Tracleer, is set to lose patent protection in 2015.

U.K.-based GlaxoSmithKline (NYS:GSK) PLC, which has a drug-research partnership with Actelion, U.S.-based Amgen (NAS:AMGN) Inc., Eli Lilly & Co. (NYS:LLY) and Bristol-Myers Squibb (NYS:BMY) Co. were named as potential bidders. The companies have repeatedly declined to comment.

Actelion has repeatedly stressed in the past it wants to remain independent and has launched a share buyback and paid out a dividend for the first time to appease shareholders. Rudolf Maag , another key shareholder of Actelion with a 4.2% stake, backed the company's management recently in an open letter and criticized Elliott's moves.

But pressure on Actelion to introduce management and strategic changes is likely to persist as several investors, who declined to be named, said they are questioning the company's strategy. They say a failure to bring new drugs to the market could result in a steep share-price fall and lead to cost and job cuts at the company.

To protect itself against the onslaughts of Elliott, which earlier this year hired U.S. shareholder-consulting firm Georgeson Inc. to drum up investor support, Actelion has published a white paper on corporate governance. It was also reported to have hired Goldman Sachs Group (NYS:GS) Inc. and U.S. law firm Wachtell, Lipton, Rosen & Katz as advisers. Actelion declined to comment on whether it has hired these advisers.

Elliott Advisors, a unit of U.S.-based hedge fund Elliott Management Corp, is likely to keep up the pressure on Actelion. The investment firm, which has assets valued at $17 billion, is known to pick high-profile fights with companies it has invested in to boost the value of its stake. In 2007, after a two-year battle, Elliott Management forced Swiss recruiter Adecco (SWX:CH:ADEN) SA to pay a higher price for its acquisition of Germany-based competitor DIS.

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