Merck, Mylan Combine Parachutes and Pills

Two pharmaceutical companies in vulnerable positions because of punishing controversies strengthened takeover defenses by combining golden parachutes with poison pills. Boards at both Merck & Co. and Mylan Laboratories Inc. sweetened severance packages for much of their executive corps and other workers by voting in extra compensation that would be triggered by a change in control. But the beneficiaries won’t have to wait until company ownership completely changes hands, and additional payments will kick in if as little as 20% of the shares is accumulated by an unwanted investor. Merck became a lightning rod when it recalled its pain killer Vioxx from the market because of apparent links to heart attacks and was targeted for huge class-action damage suits. Mylan, by contrast, is in hot water because of its efforts to acquire rival generic drugs producer King Pharmaceuticals Inc. over the objection of some shareholders led by investor Carl Icahn, who owns nearly 10% and has threatened a takeover attempt. Merck installed its package, covering about 230 executives, in late November. Mylan followed suit in early December and applied its enhanced payout to a far broader group of about 2,200 workers. Neither company made a public announcement but disclosed the packages in filings with the SEC. In both cases, control would “change” if someone acquired more than 20% of outstanding shares or current boards or their approved successors no longer constituted a majority. If there was an actual merger, the sweeter payouts would be distributed if Merck holders owned less than 50% of the combined firm and Mylan holders owned less than 60%. Some compensation experts said that the packages were comparable to severance programs at other companies and noted that parachutes were designed to keep managers on the job while their employers navigated turbulent waters. Mylan voted in a shareholders rights program earlier in 2004. Meanwhile, other companies voted in pills during November under varying and sometimes unusual circumstances. In a much publicized action, News Corp. voted in a pill after Liberty Media Corp. disclosed plans to boost its ownership in News Corp. to 17% from 9% but said it would remain a friendly investor. MarketWatch Inc. installed a pill after Dow Dow Jones & Co. won an auction to buy the online financial news provider, which said the plan was designed to protect it from moves by another buyer. And DeVry Inc. put a pill in place amid a disclosure that there was takeover interest in the private school company. Other firms installing pills in November were: Aspect Medical Systems Inc.; Bioenvision Inc.; CancerVax Corp.; Physicians Insurance Co. of Wisconsin; Santarus Inc.; and Synergy Financial Group Inc. On the flip side, Raytheon Corp. voted to scrap its staggered board and adopted a policy of shareholder approval for adopting a pill while Nicor Inc. dropped its shareholder rights plan. Copyright 2005 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.majournal.com