Will Icahn, Biogen part?

By Steven Syre
Globe Columnist / August 30, 2011

E-mail this article

Invalid E-mail address
Invalid E-mail address

Sending your article

Your article has been sent.

Text size +

Investor Carl Icahn fought long and hard to put three handpicked directors on the board of Biogen Idec Inc. in a bruising battle to reshape the Weston biotech giant.

So what happens when Icahn no longer counts himself among Biogen’s shareholders? That day has come, or at least it appeared to arrive toward the end of June. Icahn, who reported owning more than 8 million Biogen shares as recently as June 22, listed no Biogen shares on his recent filing of portfolio holdings as of June 30.

Those three directors who continue to serve on the board - Alex Denner, Richard Mulligan, and Eric Rowinsky - certainly have some financial interest of their own in Biogen. But their combined holdings of stock and options amount to a relatively modest 77,000 shares or so. That’s a very different situation.

During their tenure in the past several years, the Biogen board has acted aggressively. The company replaced its chief executive, cut expenses, and narrowed its research efforts. What happens to that board presence now?

To be sure, Icahn has a history of sometimes moving out and back into stocks he follows. But I have no idea why something so unusual as that would happen, and no one in his office called me back.

Icahn’s board nominees also have a track record of remaining in the picture at companies they join. But Icahn has moved onto the next biotech corporate battle. Forest Laboratories Inc., his latest target, is fighting a proxy contest over the election of directors. The company insists two Icahn nominees, Denner and Mulligan, face a conflict of interest due to their positions at Biogen.

In Massachusetts, Icahn has already made his fortune. Most of the Biogen stock he recently owned was purchased at an average price of $50.45. Those shares closed at prices ranging from $100.67 to $108.98 over the last eight days of June, when Icahn was presumably a busy seller.

Once every two years or so, I feel compelled to ask a simple question. How did this ever make sense?

I’m talking about Gatehouse Media Inc., a Fairport, N.Y., company with newspaper holdings that include The Patriot Ledger in Quincy, the Brockton Enterprise, and many Massachusetts weeklies.

Gatehouse came to mind again while I watched its stock lose about half its value last week, falling from 8 cents to about 4 cents per share. Those shares gained back a little over a penny yesterday, boosting Gatehouse’s stock market value to about $3 million.

This is a company that went public five years ago, with Goldman Sachs as it lead underwriter, at a price of $18 per share. Gatehouse sold even more shares the next summer for $18.45 each.

The real problem at Gatehouse is not about the newspapers it owns. The company’s media operation consistently generates cash, a virtue that has required serious cost-cutting in the face of declining revenues. Cash coming out of those newspaper operations amounted to about $26 million last year.

The real problem is the mountain of debt Gatehouse and its original private-equity owner, Fortress Investment Holdings, piled up while acquiring a portfolio of 86 daily papers, 254 weeklies, and a long list of shoppers. (The company owns six dailies and 109 weeklies in Massachusetts.) That obligation comes to about $1.2 billion.

It’s hard to imagine how the Gatehouse business can ever manage to whittle down the Gatehouse debt in any meaningful way.

This is not a revelation. Gatehouse has traded as a penny stock for nearly three years now. But the recent slide last week roughly matched the company’s stock low, recorded while financial markets melted down in 2008.

I don’t know what the Gatehouse papers were really worth at the time of their purchase. Certainly they are worth less today. I doubt you would find many newspapers that could claim to be worth as much as they were five years ago. But Gatehouse did its newspapers no favors when it scooped them up and buried them in debt.

Timing is everything: A small group of stocks I mentioned as possible bargains in this space last Tuesday had a good week. Those stocks - Staples Inc., EMC Corp., and an alternative energy investment basket of A123 Systems Inc. and EnerNOC Inc. - were up about 10 percent.

Steven Syre is a Globe columnist. He can be reached at