Melnyk's Actions Will Only 'Delay the Inevitable' at Biovail

Whatever happens in court, the battle for Biovail Corp. (BVF) has almost certainly been won by the incumbent board of directors, says John Maletic, an analyst at Scotia Capital.

The drug maker's annual meeting was thrown into chaos on Wednesday after founder and largest shareholder Eugene Melnyk tried to delay the meeting by withdrawing his participation. Mr. Melnyk is leading a group of dissident shareholders trying to replace the company board with their own slate.

But Biovail went ahead with its meeting anyway, announcing that its slate of directors captured nearly 98% of the vote. Mr. Melnyk fired back by suing the company to force it to declare the vote invalid. According to Mr. Maletic, the tactic will only delay the inevitable.

In a research note Mr. Maletic said:

While the actions of Mr. Melnyk may indeed invalidate [the] meeting and force and additional one at a later date, it is unclear to us that the results of the vote will be any different.

On the downside, the continuation of the proxy war will be "an unwelcome distraction for current management," he noted.

Mr. Melnyk, who owns about 11.6% of the shares, launched his battle to change the board in the spring, arguing the incumbents have mismanaged the company. He has vowed to start a new pharmaceutical company if he loses the fight. Trimel Pharmaceuticals will pursue the strategy that he wanted for Biovail and it will be funded with up to C$100-million in capital.

Given that the difficult odds Mr. Melnyk is facing in his proxy battle, many analysts have begun to question how long he will hold onto his Biovail shares.

Mr. Maletic has maintained his "sector perform" rating with one-year target price of C$16.

Comments

[Clearlead:]

What a crazy company...absurdly high dividend, nutty investors, losts of litigation, no certain future, you name the flea this dog has it.

2008 Jun 30 09:01 AM

[misterchan:]

I agree with above comment, but wouldn't it be interesting if someone came to the rescue with a flea collar. Stranger things have happened on Wall St.

2008 Jul 07 07:36 PM

[cedar:]

Perhaps all is true but that nutty investor drove the company to what it was and would provide the direction to take in a positive direction. Some of the most bothersome fleas come in the form of the self-promoting, agenda biased analysts. The comany has two certain futures. It is the future that is yet to be determined. Given a choice, my money would go on the entrepreneur that pushes limits to maximize shareholder value. Keep in mind, if he gains, all us investors gain.

2008 Jul 08 11:32 AM

[Jim Sack:]

Well, I read your comments and wonder over what specifics this fight continues? Does the current board mismanage (and how), do they choose the wrong products or strategy, do they squander funds on themselves (Tyco), what do they do that is counter-productive to shareholder value?

2008 Jul 16 07:44 AM