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business newsInvestors Revolt Against Charles River
By
Brett Chase
Dec 09, 2010 12:00 pm
Two of Charles River's biggest investors are teaming up to push for a sale of the company because of a lack of confidence in management.
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Foster proposed a bet-the-farm deal to spend $1.6 billion (almost the size of the company’s current market cap) on Chinese pharmaceutical-testing firm WuXi PharmaTech (WX). But his plan was batted away by large shareholders who opposed the deal on the grounds it was too pricey.
Now one of those big shareholders, Ralph Whitworth’s Relational Investors, is calling for a sale of the medical-testing company to a private equity firm or other buyer. Relational is being joined by a seemingly improbable accomplice, the California State Teachers Retirement System.
The two investors hold a little more than 6% of Charles River’s stock. In a recent securities filing, the shareholders say they have met with company directors and managers to push the idea of a sale.
Representatives of both investor groups “have met with members of the board and management to discuss the (shareholders’) concerns and urge prompt corrective action,” the filing says. “Specifically, the (investors) believe the company’s board should promptly form a committee of independent directors to consider broad strategic alternatives for maximizing shareholder value, including a sale of the company. The (investors) believe there are opportunities to realize significant value for shareholders from a sale of all or pieces of the company.”
They also note that they “have pointed out the robust activity of private equity sponsors and encouraged the company to assess the feasibility of a going-private transaction as a way of maximizing shareholder value.”
“We have taken decisive action to address near term challenges and will continue to do so,” the company says in a statement. “We are confident in our strategic direction and growth prospects. We look forward to sharing our perspective during our investor call next week.”
Shares of the company jumped more than 5% in morning trading to $35.78. They sank as low as $28.25 in August.
Relational and CalSTRS (as the pension fund is known) threaten to challenge Charles River’s board in a proxy fight next year if it doesn’t make progress on selling the company.
The biggest beef the investors have with the company is its acquisition strategy, according to the filing. Charles River pursues low-return assets, the investors say. The company is a major supplier of animals for lab testing and helps with the early “pre-clinical” work in drug discovery for other companies. But it also provides services for human studies that pharmaceutical companies conduct before their drugs are considered for approval.
Foster, the company’s CEO since 1992, touted the proposed deal for WuXi as revolutionizing the contract research field. The Chinese company says it tests drugs and medical device products in shorter times and for less cost. The thinking was cost conscious drug makers would find cheaper Chinese outsourcing desirable. Charles River’s biggest investors disagreed.
“The company’s recent attempt to acquire (WuXi), another large investment in the pre-clinical business, destroyed our confidence in the company’s current management and board of directors, and their capital allocation discipline and stewardship over the company’s assets,” Relational and CalSTRS say in their filing.
Whitworth is well schooled in challenging companies. He secured a seat on Genzyme’s (GENZ) board after challenging that company’s management. He’s seen as a key player in the takeover battle launched by Sanofi-Aventis (SNY), which made a hostile bid for Genzyme in November.
No positions in stocks mentioned.
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