Loyalty vs. Responsibility – Who’s kidding whom?

Loyalty vs. Responsibility – Who’s kidding whom?

This past Thursday billionaire activist investor Carl Icahn was at it again keeping his legal team busy this time suing Amylin (NASDAQ:AMLN) seeking records from the company’s board of directors meetings. Specifically he wants to know why the board rejected an unconfirmed unsolicited $3.5 billion takeover over made by Bristol Myers Squibb (NYSE:BMY).  It should be noted that neither Amylin nor Bristol has confirmed such an offer was made and then rejected.

Before we move forward it’s important to understand how this situation transpired, as it wasn’t until Wednesday March 28th that anyone even knew Bristol had a made an offer or at least that was what was reported by Bloomberg. Like so many stories in the financial press and this one is no different the story did not identify any specific individual’s only two unnamed sources. Having used confidential sources in the past Diabetic Investor has no issue with the Bloomberg story or the use of unnamed sources. Having been in situations like this before we believe Bloomberg printed what they believed was true as it is not their job to ponder why they were told what they were told, Bloomberg is a news organization and this was a newsworthy event.

In fact the deeper Diabetic Investor digs into this story the more we believe that an offer was made and ultimately rejected, although we do not believe it was a “formal” offer. As so often happens in situations like this Company A approaches Company B with Company A saying they would like to buy Company B for X amount of dollars. The board of Company B understanding their fiduciary responsibilities to the company’s shareholders discusses the offer but says thanks but no thanks.  These same board members also understand that they shouldn’t be discussing the situation with anyone as this too would be a violation of their fiduciary responsibility.

Having spoken with several respected individuals who either have served or are currently serving on various corporate boards situations like what going at Amylin happen all the time. They also note that boards must be free to consider and discuss company related matters without fear of being sued or having these confidential discussions ultimately made public. Although the situation is not exactly like lawyer client privilege there is a host of case law that makes Mr. Icahn’s most recent lawsuit an exercise in futility and exposes the suit for what it really is; another attempt by Mr. Icahn to stay in the spotlight.

Being an activist investor one would think that Mr. Icahn would understand what goes on in corporate board rooms across the country and he would not like it very much if his own board of directors started publicly shooting their mouths off about what was going inside Mr. Icahn’s company. That it would be considered unethical for a member of the board to reveal what was discussed during a board meeting with someone who is not a member of the board. Simply put unless something needs to be made public what’s discussed in the board room stays in the board room!

Now here is where many will state that an offer to buy the company is a material event and therefore must be publicly disclosed. At first glance Diabetic Investor felt this was the case that was until we discussed with situation with lawyers who are experts in corporate law and have represented either corporate boards or board members. Without getting overly technical the basic rule is that until a deal is actually consummated its best to keep quiet. Or as anyone in the business world knows there is no such thing as done deal until the ink is dry on the contract and the check has cleared the bank. When it comes to corporate deal making Murphy’s Law is in full effect as anything that can go wrong usually does.

These same experienced attorneys also noted that it could actually be illegal to disclose an unconsummated offer to buy as it could be considered a violation of insider trading laws. As they noted there hundreds, if not, thousands of offers made that are rejected. That had each of these offers become public it would nearly impossible to conduct business or have orderly trading in the company’s shares.

Now Mr. Icahn knows all this which is why his public statements and frivolous lawsuits are so laughable. It amazes Diabetic Investor how many people are duped by his antics and actually believe he’s doing something for the benefit of someone other than himself. The simple truth is Mr. Icahn is nothing more than a school bully who is bigger than the other kids. Someone who will use his vast wealth to get what he wants no matter who else gets hurt. While it’s true that others may benefit from his antics it is delusional to believe that he is doing what he does for any other reason than to increase his own personal net worth.

Yet, when it comes to Amylin Diabetic Investor believes Mr. Icahn’s actions are not just hurting the company but could extend to being illegal. Let’s start with the story that ignited this situation, the story that appeared in Bloomberg which cited two unnamed sources.  As we noted previously we have no problem with what Bloomberg did however everyone seems to be ignoring the strong possibility that it is Mr. Icahn or one of his many associates who gave this story to Bloomberg.

Keep in mind that Mr. Icahn owns almost 9% of Amylin. According to recent SEC filings; “The aggregate purchase price of the 14,381,925 Shares purchased by the Reporting Persons collectively was $335,022,719 (including commissions).” The Filing goes onto state; “The Reporting Persons may be deemed to beneficially own, in the aggregate, 14,381,925 Shares, representing approximately 8.94% of the Issuer’s outstanding Shares (based upon the 160,809,575 Shares stated to be outstanding as of March 8, 2012 by the Issuer in the Issuer’s 424B5 – Final Prospectus Supplement, filed with the Securities and Exchange Commission on March 9, 2012).” Simply put Mr. Icahn has invested heavily in Amylin and stands to reap some huge profits should a bidding war develop. As we noted before we have no problem with Mr. Icahn making money our problem lays in what tactics he would use to get what he wants and who he’ll hurt along the way.

While Mr. Icahn does own nearly 9% of the company and has access that minority shareholders do not enjoy, he is not privy to what’s discussed by the company’s board of directors as he is not a board member- or is he? Back when Mr. Icahn first started invested in Amylin and began becoming a major annoyance he was able to secure a spot on the board of directors for Alexander J. Denner; who according to a profile found on Forbes.com – “Dr. Denner serves as Managing Director of entities affiliated with Carl C. Icahn, including Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Partners Master Fund II LP and Icahn Partners Master Fund III LP. Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Partners Master Fund II LP and Icahn Partners Master Fund III, all of which are private investment funds.”

Now Diabetic Investor has never met or spoken with Dr. Denner yet one can’t help but wonder where his loyalties lie and just whom he feels obligated too. While it completely possible that Dr. Denner is not feeding information, material non-public information to Mr. Icahn, his employer, it is also possible that the Chicago Cubs have realistic shot at winning the World Series this year.

As B.H. Liddell Hart once noted “Loyalty is a noble quality, so long as it is not blind and does not exclude a higher loyalty to truth and decency.”  Or as Jesus said “No one can serve two masters.”

Let us be clear here as Diabetic Investor has no direct knowledge that Dr. Denner has done anything illegal or unethical. It is possible that the story was leaked to Bloomberg by someone else and that Mr. Icahn is being feed information from another member of the Amylin board. We suppose it’s even possible that Mr. Icahn is not being feed any information, is not responsible for the leaks and actually believes he’s helping the situation.  However from our perspective this whole situation does not pass the smell test and as old saying goes there is something rotten in Denmark or should we say San Diego.

The fact is money buys lots of things and this would not be the first, nor will it be the last time, when someone as wealthy as Mr. Icahn who is largely responsible for the livelihood and wealth of Dr. Denner would expect some form of payback.  Having never met Dr. Denner we have no idea if he’s the type of person who would put the responsibility of being a member of the Amylin board ahead of his personal ties to Mr. Icahn.  As Ralph Waldo Emerson noted; “It will not do to diminish personal responsibility; do not give money and teach the man to expect it. Do not give a Bible, or a genius, to think for him.”

The bottom line here is that no one wants to take on Mr. Icahn nor does anyone consider the damage he may be inflicting on Amylin shareholders.  Thanks to his ranting, raving and wealth Amylin is now in play and it’s just a matter of time before they end up in the hands of someone. Again as we have noted previously it’s no longer a question of if someone will buy Amylin, the questions are who it will be, when it will happen and what they will pay.  Given this situation one can only wonder and speculate how the situation would have played out had Mr. Icahn kept his big mouth shut.

The harsh reality is when Amylin is finally sold and Mr. Icahn claims another victory, no one will care what would have been.  Mr. Icahn will move on and begin pestering another company and this cycle will start all over again.  Sad but true.