Andrx Shareholder Questions Sale Price

By John Dorschner, The Miami Herald

Mar. 29–Andrx’s largest shareholder, MMI Investments, is questioning whether the Davie drug maker is accepting too low a price in its proposed $1.9 billion sale to Watson Pharmaceuticals.

"I am concerned a lot of money is being left on the table," MMI President Clay Lifflander said Tuesday. "At this point, we are highly dubious" of the proposed deal.

Andrx did not respond to requests for comment.

MMI, a small-cap value fund based in New York, owns 9.1 million shares, or 12.3 percent of Andrx.

Lifflander said the fund was still buying hundreds of thousands of shares of Andrx at about $21 a share just hours before the company announced it was being sold to Watson for $25 a share in cash.

Lifflander believed Andrx stock could have risen over $30, perhaps as high as $40 a share, after it had resolved problems with the Food and Drug Administration, which last year stopped approving Andrx’s new drug applications until the company resolved inspectors’ complaints about quality control at its Davie plant.

"This was a total shock," Lifflander said of the proposed purchase by the California-based Watson. "I felt a rug was pulled out from under me."

As a former merger and acquisitions specialist with Smith Barney, Lifflander said he understood the key ingredients in evaluating a deal and that he believes Andrx would be much better off resolving its FDA issues before arranging for a sale.

"If you had a trophy home, and it was hit by lightning and $50,000 in damage, would you try to sell it damaged or would you wait a little and fix it up, and then sell it?" Lifflander asked.

FAA INSPECTION

On March 13, the same day it announced the Watson deal, Andrx said FDA inspectors were once again in the plant, to see whether the company’s responses to inspector complaints were adequate.

Lifflander and some analysts, including Deborah A. Knobelman at Piper Jaffray, believed Andrx would resolve the problems by the second half of this year at the latest.

"If they waited for that, they could have a whole slew of inquiries from buyers," said Lifflander, including aggressive India generic drug manufacturers seeking to move into the United States.

One possibility is that Andrx’s problems with the FDA are more severe than the company has publicly acknowledged, even though on the day the Watson deal was announced, Andrx Chief Executive Thomas Rice told analysts in a conference call he was "hopeful" the FDA issues would be quickly resolved.

‘AT THEIR WORD’

"I’m taking management at their word," Lifflander said. "Maybe I’m a wild-eyed optimist, but I actually thought they were going to resolve their problems."

He, like other investors and analysts, heard Rice say he hired a new management team to fix quality issues raised by the FDA and get the plant a clean bill of health.

Lifflander said he wasn’t concerned about losing money. His fund was buying Andrx at $14 to $21 a share, and will make tens of millions if the Watson deal goes through.

A Business Week story on his views toward Andrx went "a little too far" in saying MMI was opposing the sale, he said. "We’re thinking about it." MMI is waiting until the company releases a proxy statement, explaining how the deal came about, before making a final decision.

Andrx’s second largest shareholder, Iridian Asset Management, which owns 9.05 million shares, or about 12.3 percent of the firm, didn’t respond to a question from The Miami Herald about its position on the Watson deal.

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