High stakes for Knight Therapeutics as proxy battle results loom

Although he’s still waiting for the votes to roll in, Meir Jakobsohn already believes the proxy fight he launched at Knight Therapeutics Inc. has been a success of sorts.

It’s still much too early to know how shareholders are leaning, but after spending three months criticizing the Montreal-based pharmaceuticals company for its conservative strategy and its leadership’s alleged lack of independence, Jakobsohn said his campaign has led to the right questions being asked.

That, in itself, is a victory, he said.

“Our campaign is a great victory for all Knight shareholders — we already created a strong change in wind,” wrote Jakobsohn, the CEO of Israel’s Medison Biotech Ltd., a 7.3 per cent shareholder in Knight, a letter on Friday.

Heading into a crucial annual meeting on Tuesday, shareholders will have to decide whether they’ll be voting in favour of the disruption and change being put forward by Jakobsohn’s slate of nominees or the continuity offered by Knight CEO Jonathan Goodman. The vote promises to have serious ramifications for the company’s future.

Should Goodman lose, he’s already told the Financial Post that he’ll immediately resign as CEO and sell off all his shares. On Friday, Jakobsohn also upped the ante.

“I have decided that I will NOT serve on Knight’s board unless we have the majority required to influence the future direction of our company,” said Jakobsohn, adding he doesn’t believe the nominees on his slate would agree to serve under Goodman.

Goodman and Jakobsohn had been sparring behind closed doors for months, according to Knight, before the Medison CEO brought the feud public in February, demanding that Goodman step down while accusing him of conflicts of interest. Goodman, Jakobsohn said, owns a bigger stake in Pharmascience Inc., a direct competitor that is operated by Goodman’s brother, than he does in his own company and alleged that he had more to gain with their success than with Knight’s.

Jakobsohn also took issue with Goodman’s low-risk strategy at Knight, which involved issuing loans to companies in rest-of-the-world markets as an attempt to slowly enter them instead of focusing on acquiring innovative therapeutics contracts.

I have decided that I will NOT serve on Knight’s board unless we have the majority required to influence the future direction of our company

Meir Jakobsohn

Knight fired back by accusing Jakobsohn of undertaking a “discombobulated scheme” to take control of the company for the purpose of using its hundreds of millions in cash to boost Medison. In response to the conflict of interest allegations, Goodman placed his Pharmascience shares into a blind trust.

Other than one major shareholder who has sided with Medison, the others have been quiet and it’s unclear which way they’re leaning. The independent voices have recommended differing degrees of change, but perhaps not to a degree that Medison would enjoy.

Two leading advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis, each recommended electing only two nominees from Medison’s slate to the Knight board. Both recommended withholding votes on Jakobsohn, citing a poor attendance record and doubts about his motivations for the campaign.

The two differed when it came to Medison’s plan: ISS did not support it but Glass Lewis did. Notably, Glass Lewis recommended that Goodman either sell his stake in Pharmascience, or alternatively, step down from his position as CEO and remain on the board, where his alleged conflict would be more manageable.

Meanwhile, research analysts at Bloom Burton Securities Inc. backed Goodman’s strategy and slate of board nominees, recommending only that Knight engage in a share buyback to return capital to investors.

The company may have reason to be confident heading into Tuesday’s vote and is already looking past it.

“Knight … looks forward to putting this unnecessary proxy fight behind it and getting back to the business of building Canada’s leading specialty pharmaceutical company,” said Knight spokesperson Ian Robertson.

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