VIVUS Extends Olive Branch, Follows With Fist

Oh, what a difference a day makes.

On Saturday, VIVUS (NASDAQ: VVUS  ) extended an olive branch to its largest shareholder and proxy-fight-adversary First Manhattan, offering to give the hedge fund three board seats whether First Manhattan won seats or not.

Trying to compromise is a good idea, one that I suggested a few weeks ago. Shares have nearly quadrupled since Biogen Idec (NASDAQ: BIIB  ) ended its proxy fight with investor Carl Icahn by giving one of his nominees a seat on the board. I doubt Icahn's nominee had that much influence on the success, given that there are 12 directors on the board. But not facing a proxy fight almost certainly helped Biogen recruit CEO George Scangos, who arguably did have a lot to do with the success.

VIVUS' niceness was short-lived, though, with the company claiming Sunday that it had reported First Manhattan to the SEC for "false and misleading statements." The company didn't actually say what First Manhattan had said except to point out that it was regarding statements about the recommendation of Institutional Shareholder Services, which recommended voting for three of First Manhattan's nominees.

VIVUS used the issue as a reason (excuse) to delay Monday's stockholders' meeting until Thursday. First Manhattan countered suing VIVUS, asking the court to order the inspector of elections to certify the results based on the results that were prepared to be voted at the meeting on July 15.

I doubt the court will agree; for most annual meetings, shareholders have the right to vote at the meeting, so how can we know how shareholders would have ultimately voted if the meeting never occurred?

It seems clear from their actions, though, that both sides believe First Manhattan is leading the proxy fight. No one knows what's next, but I doubt it'll involve any compromises.

The real winner
The longer this drags on, the better it is for Arena Pharmaceuticals (NASDAQ: ARNA  ) and Eisai, which sell the obesity drug Belviq that competes directly with VIVUS' Qsymia. With management and employees distracted by the proxy fight, I doubt marketing of the drug is firing on all cylinders.

If First Manhattan wins, the hedge fund has made it clear it plans to replace CEO Leland Wilson with Anthony Zook, the former president of MedImmune. Even if the switch can take place fairly quickly, it'll take time to get the new strategy implemented.

Depending on how well VIVUS recovers from the turmoil, the proxy fight could even benefit Orexigen (NASDAQ: OREX  ) , which has an obesity drug that could be on the market next year.

If VIVUS somehow pulls a come-from-behind victory, I expect that shares might drop substantially since it seems clear there's a sizable shareholder base looking for a change.

Investors might also vote in some, but not all, of First Manhattan's nominees, which would seem to be the worst outcome for VIVUS and therefore the best for Arena and Orexigen. Internal boardroom fighting would certainly hinder the long-term prospects for Qsymia.

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