Big advisory firm sides with Knight in proxy battle
Report finds activist ‘failed to make compelling case for board control’
A major shareholder advisory firm weighed in on the proxy fight at Knight Therapeutics Inc. on Thursday, arguing that the company is flawed, but that the activist leading the charge against the current board of directors has not made a strong enough case to warrant a change of control.
The report by Institutional Shareholder Services (ISS), which comes ahead of a shareholder vote scheduled for May, noted that the Montreal-based pharmaceutical company has vastly underperformed its competitors and that its shares were trading at liquidation value.
It also flagged potential governance issues.
These factors, however, were not enough for ISS to side with Meir Jakobsohn, the CEO of Israel-based Medison Biotech Ltd. — or even recommend that he sit on Knight’s board. Medison, which owns 7.3 per cent of Knight’s shares, launched a proxy fight in March after accusing Knight CEO Jonathan Goodman of having conflicts of interest and of deploying an ultra-conservative business strategy.
Knight has responded by saying that the proxy fight is a conduit for Jakobsohn to obtain control of the company and its millions in cash to boost Medison.
In its report, ISS said that Medison highlighted legitimate concerns about Knight but warned shareholders about siding with them, recommending that they only vote in favour of two nominees from Medison’s slate of proposed directors and six from Knight’s.
“The dissident has failed to make a compelling case for board control,” the report said. “Moreover, the dissident’s go-forward plan, if fully instituted, may expose the company, which has been very deliberate about deploying its capital, to significant risks.”
In a release, Medison did not address the concerns ISS had about Jakobsohn. Instead, it highlighted how the adviser determined that Knight was underperforming and the call for some changes at the company.
“Without real change, there can be little hope that Knight will ever be worth more than the cash and financial assets on its balance sheet,” Jakobsohn said.
ISS did raise questions about the makeup of Knight’s current board, which only has a board independence of 57 per cent in comparison to a median of 80 per cent for other members of the S&P/TSX Composite Index.
The adviser highlighted Knight president and chief financial officer Samira Sakhia and Jakobsohn as two of the three non-independent members and encouraged shareholders to withhold votes on both.
Instead, ISS recommended that shareholders elect Elaine Campbell and Christophe Robert Jean, two Medison nominees with significant pharmaceutical experience at AstraZeneca and Novartis, respectively. It’s “highly unusual” for a CFO to sit on the board of a company that is a part of the S&P/TSX Composite Index, ISS said. Sakhia’s presence on the board may also impact independent oversight of management, the adviser added, because she’s worked with Goodman for 18 years. To ISS, Jakobsohn’s place on the Knight board is “problematic” and has “contributed to a certain degree of dysfunction,” the report said, due to his ongoing conflict with Goodman. ISS also questioned Jakobsohn’s motivations for launching the proxy fight, concluding that Knight’s claim that he may want to use their cash to solely benefit Medison “does not appear unfounded.” “Jakobsohn’s agenda carries significant risk and does not appear to be aligned with the company’s original strategy, and thus may not be aligned with shareholder expectations,” the report said. In a statement to the Post, Knight spokesperson Ian Robertson said the report “validates” what the company has been hearing from its shareholders.
“Knight benefits from the leadership of Jonathan Goodman … not a Knight controlled by Meir Jakobsohn, his nominees who have no entrepreneurial pharma experience, and his risky scheme to gamble with Knight’s cash.”
Jakobsohn’s agenda carries significant risk and does not appear to be aligned with the company’s original strategy.