This presentation was given at an information meeting for significant
stockholders of ICN in New York City on Thursday 21 September, 2000.
This presentation is available on Special Situations Partners, Inc.'s website:
www.ssp-specialsituationspartners.com.
Slide One
ICN Pharmaceuticals Inc.
Why are the Stockholders not being allowed to vote on the future of the Company?
SSP - Special Situations Partners, Inc.
September 2000
Slide 2
IMPORTANT
Prior to any solicitation of proxies with respect to ICN Pharmaceuticals, Inc.
("ICN"), SSP - Special Situations Partners, Inc. ("SSP") will file with the
Securities and Exchange Commission (the "SEC"), and will furnish to security
holders of ICN, a proxy statement, which security holders are advised to read as
it will contain important information. Security holders may obtain a free copy
of such proxy statement (when available) and other related documents filed by
SSP and ICN at the SEC's website at www.sec.gov. The proxy statement will also
be available from SSP at c/o Fidinam (Monte Carlo) SAM - Monte Carlo Palace, 7
boulevard des Moulins, MC 98000 Monaco or at SSP's website at
www.specialsituationspartners.com.
Information concerning the identity of SSP and of each of the executive officers
and directors of SSP who may be deemed to be participants in any solicitation by
SSP of proxies with respect to ICN, including a description of their direct and
indirect interests in ICN, may be obtained from the Schedule 13D, dated November
15, 1999, as amended with respect to ICN filed by SSP with the SEC.
Slide 3
I. INTRODUCTION
Slide 4
Who are we?
o SSP is a privately owned investment company, whose Chairman and controlling
shareholder is Dr. Tito Tettamanti, a successful Swiss investor and
industrialist.
o Our policy is to invest in sound companies which are undervalued by the
market and to work with shareholders and management to maximise shareholder
value.
o As of today, we are one of the largest shareholders of ICN. We currently
own 3.2 million shares (representing 4.0% of the outstanding share capital)
and hold call options over an additional 3.5 million shares (representing
an additional 4.4%).
Slide 5
How do we view ICN?
o Conceptually, ICN can be split into three parts - each corresponding to one
of the "building blocks" of ICN's recently announced reorganisation.
o Each of these building blocks has very different characteristics.
Slide 6
How do we view ICN? (cont'd)
1. Ribapharm, which holds ICN's very valuable royalty stream on sales of
Rebetron by Schering Plough and which now also houses ICN's new R&D team.
2. ICN International, headquartered in Moscow, which primarily consists of one
of the largest pharmaceutical businesses in Eastern Europe - which the
market does not appreciate, but which may nonetheless be a valuable asset.
3. The Specialty Pharma business, which is a collection of fairly mature but
profitable products, with a strong dermatology franchise, mostly acquired
rather than developed in-house.
Slide 7
How do we view ICN? (cont'd)
To complete the picture:
o ICN has a small non-strategic subsidiary - ICN Biomedicals - which we
understand is slated to be sold.
o Although relatively insignificant in terms of size, ICN Biomedicals could
play an important role in a reorganisation.
Slide 8
ICN Today
[CHART]
Slide 9
ICN's Share Price
[GRAPH Comparing ICN stock price to AMEX Pharm Index from 1/97 to 7/00]
o ICN's shares have underperformed the market for two years and there can be
little doubt that they are undervalued.
o ICN hired UBS Warburg in February of this year to explore strategic
alternatives in order to increase shareholder value.
Slide 10
II. THE RESTRUCTURING PLAN PROPOSED BY ICN
Slide 11
The restructuring plan proposed by ICN
o On 15 June, ICN announced a strategic reorganisation designed to address
the issue of the chronically weak share price.
o ICN's stock price fell by over 20% (from $35 to $27) on the day the plan
was announced, and by a further 5% in the following days; over the period
the ICN shareholders collectively lost over $ 700 million in value.
o Faced with shareholder criticism, the Board responded by saying the the
proposal was made "on the recommendation of its investment bankers".
(Source: Bloomberg 30 June, 2000)
Slide 12
The market's reaction
[GRAPH Showing ICN Stock price for the month of June, 2000]
o ICN's stockholders lost $ 700 million in value immediately following the
announcement of ICN's plan.
o The price has not recovered despite efforts to make the proposal more
attractive to the shareholders.
Slide 13
The case of Nycomed Amersham
[GRAPH Showing Nycomed Amersham Stock price from 1:30 pm on August 4, 2000
to 1:30 pm on August 7, 2000]
o In August this year, Nycomed Amersham announced plans to sell 10% of AP
Biotech to the public - in order to enhance its share price. (Source:
Bloomberg, 7 Aug 2000)
o Nycomed's share price fell sharply on the announcement, despite AP
Biotech's anticipated multi-billion dollar market cap. The analogy with ICN
is striking.
Slide 14
ICN's Plan (con't)
The Plan proposed by ICN on 15 June 2000 involves the following steps:
o Creation of two new publicly traded subsidiaries: Ribapharm and ICN
International.
o Up to 20% of Ribapharm and less than 50% of ICN International to be offered
to the public.
o Cash raised by ICN to be used to reduce debt.
o Mr. Panic to be Chairman of ICN and the two subsidiaries
Slide 15
ICN's Plan (con't)
[CHART]
Slide 16
Why did the Board adopt this strategy?
By reorganising into three separate public companies, ICN has indicated that it
hopes to unlock the value of the components by:
o providing greater transparency; and
o creating more focused businesses.
(Source: ICN press release dated 15 June 2000)
Slide 17
Why did the Board adopt this strategy? (cont'd)
o Greater transparency should enable investors to value each of the parts
against a universe of comparables.
o Greater focus should improve access to capital since each unit will appeal
to different types of investors, both as to geographic preference and as to
investment philosophy.
(Source: ICN 2nd Quarter Report rec'd 19 Sept. 2000)
This theory may be convincing -- and is not necessarily incorrect -- BUT ...
Slide 18
Why did the market reject ICN's Plan?
We believe that there is a completely different explanation for ICN's
depressed share price:
1. The market is scared of ICN's exposure to Eastern Europe, having been badly
burned in the past; and
2. The market is scared that too much power is wielded by the Chairman,
without sufficient Board constraint.
Slide 19
Why did the market reject ICN's Plan? (cont'd)
ICN's plan fails to address these two concerns:
1. ICN International will still be consolidated - both for tax and accounting
purposes - so the emerging market exposure at the parent company continues
to exist.
2. As Chairman of ICN, with its two majority controlled subsidiaries, Mr.
Panic will continue to have unfettered control over the whole group.
Slide 20
ICN's reaction to shareholder criticism
o ICN responded by changing the composition of the Board of Ribapharm.
Unfortunately, this still misses the point:
o The composition of the Board of Ribapharm is almost irrelevant given that
ICN will continue to have majority control.
o A potential bidder for Ribapharm would still have to go to ICN for
approval.
Slide 21
III. SSP's PROPOSAL
Slide 22
SSP's Proposal
On 13 June 2000, even before ICN's announcement, SSP wrote to the Board of
ICN suggesting a different approach.
o The three "building blocks" are the same, but in SSP's proposal, Ribapharm
is the parent and the subsidiaries to be spun off are ICN International and
the Specialty Pharma business.
o As a result, ICN Biomedicals would remain with Ribapharm
Slide 23
SSP's Proposal (cont'd)
[CHART]
Slide 24
presenting the same information in a slightly different way ....
[CHART]
Slide 25
SSP's Proposal (cont'd)
[CHART]
Slide 26
SSP's Proposal (cont'd)
o 100% of the stock of the Specialty Pharma business and of ICN International
to be distributed to ICN's shareholders.
o This would leave ICN shareholders with:
- one share in the parent company (effectively Ribapharm and ICN
Biomedicals)
- one share in the Specialty Pharma business; and
- one share in ICN International
for every share of ICN held today.
Slide 27
SSP's Proposal (cont'd)
[CHART]
Slide 28
This addresses the Shareholders' Concerns
o Shareholders wanting to eliminate the emerging market risk can do so by
selling their ICN International shares.
o As completely separate and independent companies, each of the three units
can pursue its own destiny.
Slide 29
This addresses the Shareholders' Concerns
o With regard to ICN International we believe that certain specialist
investors will be attracted by the pure emerging market "play" and that the
company would also be of strategic interest to a number of international
Pharma groups.
o Free from the constraints of an 80% shareholder, Ribapharm would be free to
combine with companies with which it would have true synergies.
Slide 30
This addresses the Shareholders' Concerns (cont'd)
o We recently met with a Biotech company which has expressed interest in
combining with Ribapharm. A combination such as this would, we believe,
greatly enhance the credibility of Ribapharm's management team and
strengthen its pipeline of new products.
o We believe this would be more attractive to the investment community than
Ribapharm on its own, and would generate significantly more value for ICN
stockholders.
o In a similar vein, we believe that the Specialty Pharma business will
achieve a better valuation on its own.
Slide 31
What do ICN's advisors really think?
o ICN has hired UBS Warburg to explore strategic alternatives in order to
increase stockholder value. Warburg presented its conclusions to the Board
in July.
o ICN's Chairman indicated to us that Warburg's report includes a statement
saying that the maximum valuation would be achieved by breaking up ICN into
three completely independent companies.
o We were not told what the remainder of the report contains - and could
understand that there may be tactical reasons (such as timing) for not
pursuing a full breakup - but we fully agree with the above mentioned
Warburg statement.
Slide 32
IV. ICN's RESPONSE TO SSP's PLAN
Slide 33
ICN's Response to SSP
1. ICN is a sound company reporting record profits for its shareholders.
2. The Ribapharm IPO will set a market price for Ribapharm.
3. US shareholders could face a tax charge of up to 39% on the spin-off of
Ribapharm.
Source: Letter from ICN to SSP dated Aug 28, 2000
This entirely misses the point!
Slide 34
Why does this miss the point?
1. We do not question that ICN is a sound company with good prospects.
2. We do not question that Ribapharm is a valuable asset, possibly worth more
than the market capitalisation of its parent.
But then why is this not recognised in the share price?
Slide 35
Why does this miss the point? (cont'd)
3. We do not question that substantial tax would be payable if 100% of
Ribapharm were to be spun off to ICN's shareholders
... but this is not what we are proposing!
In fact, we are proposing exactly the opposite...
Slide 36
SSP's Proposal
[CHART]
Slide 37
Taxation of spin-offs
In general, under current U.S. law, spin-offs are tax free provided, inter
alia, that
o both the subsidiary and the parent have conducted an active trade or
business for 5 years; and that
o each will continue to do so after the spin-off.
Slide 38
Taxation of spin-offs (cont'd)
SSP's proposal:
o Based on publicly available information and discussions we have had with
ICN representatives, we believe that each of (a) our proposed parent
company (Ribapharm plus ICN Biomedicals) and (b) the companies to be spun
off (Specialty Pharma and ICN International) should qualify as 5 year
businesses.
o Therefore, based on this information, we believe that a full spin-off of
Specialty Pharma and ICN International (as per our proposal) should not
trigger a tax charge.
o ICN has not disputed this analysis.
Slide 39
ICN's Plan
[CHART]
Slide 40
Taxation of spin-offs (cont'd)
Structure proposed by ICN:
o Under ICN's proposal, the parent company clearly qualifies as an "active
trade or business for 5 years", but we believe that Ribapharm, the
subsidiary, does not.
o This means that under ICN's current plan there appears to be no prospect of
a tax free spin-off of Ribapharm for the next five years.
Slide 41
V. WHAT NEXT?
Slide 42
The Ribapharm IPO
o If the Ribapharm IPO goes ahead without modification, shareholders will
lose the possibility of a tax-free spin-off of Ribapharm for the next five
years.
o This value destruction is not acceptable and at the very least, ICN's
shareholders should be allowed to vote on the question.
Slide 43
Mixed Signals?
o June 15 ICN announces its restructuring plan for minority "carve-outs".
o July 24 The Chairman leads us to believe that he will promote
full spin-offs.
o August 28 ICN announces that it has no intention of changing its
restructuring plan.
o September Three days later...
Slide 44
Mixed Signals? (cont'd)
The Company's position appears to have changed yet again:
"Panic said ICN would change the structure of the reorganisation by giving
shareholders the remaining stakes [in Ribapharm and ICN International] in
the form of stock dividends" (LA Times 2 Sept 2000)
"We are considering the possibility of a tax free spin-off [for Ribapharm]"
(2nd Quarter Report rec'd 19 Sept 2000)
The shareholders have a right to know what ICN's plan really is.
Slide 45
The Possibility of a Takeover
o There have been rumours of discussions with interested parties at a very
senior level for several months - but nothing has materialised.
o With some encouragement from the Board of ICN, we believe that there would
be several parties interested in acquiring ICN and/or its constituent parts
- at attractive prices
Slide 46
Conclusion
o Given the mixed signals being given by ICN to the market concerning its
plans,
o the very clear signals being given by the market to ICN in response, and
o the takeover rumours which refuse to disappear .... ICN's Board should now
instruct its investment bankers to consider an auction of the Company - as
a whole or in parts.
Slide 47
Conclusion (cont'd)
o We understand the valuation attached to the shares of ICN in Warburg's July
report to the Board was in the range of $35 to $55.
o This is consistent with numerous other valuations published by Wall Street
analysts and should represent an achievable target - even prior to the
Stockholders Meeting.
Slide 48
What actions do we plan to take?
In our letter to Mr Panic dated 24 August 2000 we wrote that, in the absence of
progress:
- we will oppose the IPO of Ribapharm by every means legally available,
including challenging its validity in the Courts;
- if necessary, we may also decide to nominate a slate of directors at
the next Annual Stockholders Meeting; and
- in order to maximise shareholder value, we intend also to invite third
parties to submit expressions of interest to acquire or merge with
Ribapharm and/or ICN.
Slide 49
Useful Addresses
o Should you wish to contact SSP, you may do so via our website:
www.ssp-specialsituationspartners.com
o Should you wish to contact ICN, the telephone and fax numbers are 714
- 545 0100 and 714 - 641 7228 respectively.
o The names of ICN's directors and details of their other directorships
may be found in ICN's proxy statement, available on the SEC website:
www.sec.gov.
We encourage you to communicate your views to any or all of the above.
