Corporate Clash Between Pfizer and Starboard Value

By Svea Herbst-Bayliss and Michael Erman

(Reuters) – The corporate clash between Pfizer (NYSE:PFE) and Starboard Value escalated on Thursday when the activist investment firm urged the U.S. drugmaker to investigate actions by its board after two former executives withdrew from its campaign against the company.

Jeffrey Smith, who heads Starboard, called on Pfizer's board to establish a special committee to look into potential "coercive conduct" that may have influenced the two executives, who initially planned to collaborate with the hedge fund, to change their minds.

Starboard has taken a position worth approximately $1 billion in the company, which has a market capitalization of $167 billion. It indicated that former CEO Ian Read and former CFO Frank D'Amelio expressed concern about the company's direction and offered assistance.

Starboard claimed the former executives reversed their involvement due to pressure from Pfizer or its representatives, who allegedly threatened them with expensive litigation. In a letter to the Pfizer board, Smith noted he had learned of recent events putting pressure on Read and D'Amelio. The letter suggested that if they did not support Pfizer CEO Albert Bourla openly, they risked losing previous compensation and unvested performance stock units.

Earlier, Guggenheim Securities, Pfizer's longtime banker, stated that Read and D'Amelio had chosen not to engage with Starboard regarding Pfizer, reaffirming their support for Bourla.

The contrasting statements reflect a growing divide between the two parties before their first scheduled meeting on Wednesday.

Lawyers and bankers noted that hedge funds typically seek backing from other large investors during their campaigns, but enlisting former executives so publicly and early is uncommon.

Smith expressed hope for "constructive engagement" with Pfizer in his letter. Starboard has not detailed specific requests, only indicating that Pfizer’s stock price has significantly declined since 2019 when Bourla succeeded Read. The stock, down 11% over the past 52 weeks, increased 4% in the last five days, trading at $29.60.

The hedge fund also criticized Pfizer’s $70 billion in mergers, a move deemed problematic by certain Wall Street analysts.

Pfizer is recognized for its COVID-19 vaccine, as well as drugs like Viagra for erectile dysfunction and Lipitor for cholesterol. Reduced demand for the vaccine post-pandemic has weighed on Pfizer's stock price, which currently trades at about half of its pandemic-era peak.

Additionally, the company faced disappointing trial data for its experimental obesity drug, a weak rollout of its respiratory syncytial virus vaccine, and the termination of its sickle-cell disease treatment Oxbryta due to fatalities in clinical trials.

Starboard has previously launched campaigns against healthcare firms, including an unsuccessful attempt in 2019 to block Bristol-Myers Squibb (NYSE:BMY) from acquiring Celgene (NASDAQ:CELG).