Starboard Value LP Shows New 9.8% Stake in DepoMed, Inc. (DEPO); Seeks to Replace Directors
In a 13D filing on DepoMed, Inc. (NASDAQ: DEPO), hedge fund Starboard Value LP disclosed a 9.8%, or 5,965,000 share, stake in the company. The firm did not hold shares at the end of the latest quarter ending March 31, 2016. The firm expressed significant concerns regarding serious corporate governance deficiencies, questionable capital allocation decisions, and egregious actions taken by the Issuer’s Board to impede strategic interest in acquiring the Issuer and to suppress shareholder rights and seeks to elect a slate of directors.
From the filing:
Item 4. Purpose of Transaction.
The Reporting Persons purchased the Shares based on the Reporting Persons’ belief that the Shares, when purchased, were undervalued and represented an attractive investment opportunity. Depending upon overall market conditions, other investment opportunities available to the Reporting Persons, and the availability of Shares at prices that would make the purchase or sale of Shares desirable, the Reporting Persons may endeavor to increase or decrease their position in the Issuer through, among other things, the purchase or sale of Shares on the open market or in private transactions or otherwise, on such terms and at such times as the Reporting Persons may deem advisable.
The Reporting Persons have significant concerns regarding serious corporate governance deficiencies, questionable capital allocation decisions, and egregious actions taken by the Issuer’s Board to impede strategic interest in acquiring the Issuer and to suppress shareholder rights. In combination, these concerns have led the Reporting Persons to believe that management and the Board may be more interested in entrenching themselves than in delivering maximum value for all shareholders. The Reporting Persons have been closely monitoring all developments at the Issuer since 2015 when the Issuer took a series of shareholder-unfriendly steps to frustrate the attempts of Horizon Pharma to negotiate an acquisition of the Issuer for at least $33.00 per Share. As of yesterday’s close, the Issuer’s market price was $14.83 per Share.
The Reporting Persons have reviewed the preliminary proxy statement (the “Preliminary Proxy”) filed by the Issuer on April 5, 2016 in connection with the Issuer’s 2016 Annual Meeting that is scheduled to be held on May 18, 2016. Specifically, the Reporting Persons carefully reviewed the Issuer’s proposal seeking shareholder approval to change the Issuer’s state of incorporation from California to Delaware (the “Reincorporation Proposal”). The Reporting Persons are extremely troubled by the fact that management and the Board of the Issuer are seeking to further entrench themselves and further suppress shareholder rights under the guise of the Reincorporation Proposal. Specifically, the Reincorporation Proposal, if effected, would: (i) eliminate altogether the ability of shareholders to call a special meeting for the purpose of removing and replacing current Board members; and (ii) prevent shareholders, for all practical purposes, from commencing a special meeting request process within 180 days of any Annual Meeting of the Issuer. The Reporting Persons question why the Issuer failed to disclose these important features of the Reincorporation Proposal in the section of the Preliminary Proxy detailing the specifics of the Reincorporation Proposal and instead included these provisions in appendices to the Preliminary Proxy.
The Reporting Persons note that the Issuer has a troubling record of egregiously manipulating the corporate machinery to entrench management and the Board and believe that meaningful change is required to ensure the Issuer is acting in the best interest of all shareholders. To that end, in order to preserve the Reporting Persons’ rights under California law and the Issuer’s current Bylaws to seek the removal and replacement of the current Board, the Reporting Persons intend to deliver later today to the Secretary of the Issuer a formal written request, as required under the Bylaws, that the Board set a record date for determining the shareholders entitled to request a special meeting of shareholders (the “Record Date Request Notice”). The Issuer’s onerous special meeting Bylaw provisions require that the Reporting Persons put forth its slate of director candidates as part of this initial step in commencing the special meeting process, as well as the other matters to be acted upon at the special meeting, including the removal of the full Board. The Reporting Persons intend to continue their search for, and to nominate at the appropriate time, a slate of director candidates that the Reporting Persons believe will ensure an experienced, diverse, and multi-industry Board. The slate of director candidates that the Reporting Persons seek shareholder support to elect at a special meeting may include one or more of the Nominees named in Item 2 above.
The Reporting Persons are taking this extraordinary action at this time to protect, defend, and unlock value while mitigating the risk that the Issuer further attempts to amend its governance provisions. The Reporting Persons caution the Board against taking any steps to further diminish or suppress the rights of its shareholders in seeking to call a special meeting in response to this Schedule 13D and the Reporting Persons’ Record Date Request Notice. The Reporting Persons intend to share more details with shareholders in the coming weeks regarding the Reporting Persons’ views on the Issuer, opportunities for value creation, and the Issuer’s significant corporate governance deficiencies.
No Reporting Person has any present plan or proposal which would relate to or result in any of the matters set forth in subparagraphs (a) - (j) of Item 4 of Schedule 13D except as set forth herein or such as would occur upon or in connection with completion of, or following, any of the actions discussed herein. The Reporting Persons intend to review their investment in the Issuer on a continuing basis. Depending on various factors including, without limitation, the Issuer’s financial position and investment strategy, the price levels of the Shares, conditions in the securities markets and general economic and industry conditions, the Reporting Persons may in the future take such actions with respect to their investment in the Issuer as they deem appropriate including, without limitation, engaging in communications with management and the Board of the Issuer, engaging in discussions with stockholders of the Issuer and others about the Issuer and the Reporting Persons’ investment, making proposals to the Issuer concerning changes to the capitalization, ownership structure, board structure (including board composition) or operations of the Issuer, purchasing additional Shares, selling some or all of their Shares, entering into financial instruments or other agreements that increase or decrease the Reporting Persons’ economic or beneficial exposure with respect to their investment in the Issuer, engaging in short selling of or any hedging or similar transaction with respect to the Shares, including swaps and other derivative instruments, or changing their intention with respect to any and all matters referred to in Item 4.
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