A potential buyout of Concordia Healthcare Corp. may help take the spotlight off criticism that executive compensation at the company is excessive.
On Thursday, the Canadian serial pharmaceutical asset acquirer, said it had established an independent committee to consider strategic alternatives and that it held discussions over a potential transaction.
Earlier in the day, Bloomberg reported that New York-based private equity firm Blackstone Group LP was in discussions to buy Concordia.
On Wednesday, Montrusco Bolton Investments – Concordia's fourth-largest shareholder – released a statement that was highly critical of what it called "exorbitant" compensation paid to Concordia's senior executives in 2015.
Montrusco Bolton also levelled criticism over what it says is a "lack of transparency" over how compensation is determined at Concordia.
Chief executive officer Mark Thompson was paid $8.9-million in 2015, compared to $632,000 he received the year before – an increase of roughly 1,300 per cent. Much of his compensation came from a bonus and restricted share units.
In a separate report, proxy advisory firm Institutional Shareholder Services (ISS) wrote that Mr. Thompson's "compensation quantum is substantially above its own selected peer median for this past year ... while the company delivered year over year [total shareholder return] underperformance, versus this same peer group."
"On [compensation] we hired a third party to give us an evaluation. Our comp is completed in line with industry peers," Mr. Thompson wrote in an e-mail to The Globe.
A number of other executives at Concordia earned multi-million dollar paydays in 2015, including chief financial officer Adrian de Saldanha, who took home $7.4-million – much of that from stock options.
Montrusco Bolton is withholding its votes for board directors Jordan Kupinsky and Douglas Deeth, who oversee the compensation committee. (In a plurality system, shareholders can't vote "against" the election of directors, but shareholders can voice their disapproval by withholding).
In its recommendation, ISS is instructing shareholders to withhold their votes for three existing directors, including Mr. Thompson. ISS is also telling shareholders to vote against the authorization of a new "blank cheque" series of preferred stock, partly because "Concordia has not stated a specific purpose" for the shares.
Concordia's annual general meeting, where shareholders will cast votes for the company's directors and weigh in on the preferred share issue is scheduled for April 29.
If Concordia is indeed bought, it will be a case of the hunter becoming the hunted. For the past year and a half, Oakville, Ont.-based company has been gobbling up one pharma asset after another. In 2015 alone, it made two separate billion dollar-plus acquisitions.
For a brief moment in early September – after it had announced the $2.1-billion (U.S.) purchase of Britain-based Amdipharm Mercury Ltd. (AMCo) – Concordia was worth $110 a share. Remarkable, when you consider the company went public in December, 2013, at $6.25.
Before talk of a buyout surfaced on Thursday, Concordia was languishing in the $31 range, having lost close to three quarters of its value since the AMCo deal was announced.
Because its business model has some similarities to Valeant Pharmaceuticals International Inc., Concordia had earned the moniker 'Baby Valeant.' Unfortunately its stock has tended to sell off in lockstep.
Mr. Thompson has on multiple occasions reminded investors of the differences between his company and Valeant – the main one being that Concordia is far less dependent on the U.S. market. And because it sells generics, Concordia isn't in a position to hike its prices by nearly as much as Valeant has on its products – a strategy that has repeatedly put Valeant in a harsh political spotlight.
But like Valeant, Concordia's debt levels are high. The firm has $3.3-billion (U.S.) in long-term debt that has spooked some of its investors and raised questions over its ability to continue its growth-by-acquisition strategy.
In a report entitled 'Back in black – not quite" released Friday morning, Mackie Research is sticking with its "hold" rating on Concordia. The boutique brokerage writes that while a Blackstone buyout would give the company access to more capital to continue making acquisitions, its first-quarter estimates have been getting revised downwards and the stock is fairly valued.