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Government drops Forest Labs probe

Billionaire financier Carl Icahn, right, and his wife,

Billionaire financier Carl Icahn, right, and his wife, Gail, in Chicago. (May 2007) Photo Credit: AP, 2007

BOSTON — The U.S. government has dropped an investigation of Forest Laboratories Inc.’s chief executive that could have barred it from federal health-care programs, removing a key issue in a proxy battle waged by activist investor Carl Icahn.

The decision came Friday just hours after Icahn, who seeks to place four candidates on Forest’s board, questioned corporate governance at the drugmaker based on its handling of the case. Manhattan-based Forest has major operations on Long Island.

The U.S. Health and Human Services Department’s Office of the Inspector General told Forest chief executive Howard Solomon on Friday it has dropped the case, the company said.

“We anticipate no further action related to this matter,” according to a text of the letter to Solomon from the OIG that was released by Forest.

The effort to exclude Solomon — over illegal drug marketing by a subsidiary of the company — would have effectively prevented Forest from doing business with the government while he was chief executive.

Icahn had drawn further attention to the case and questioned whether Solomon had a proper plan for a successor.

Minutes of an April 5 board meeting and released Friday after Icahn won a court order to make them public, showed Solomon was present at the meeting where directors discussed whether to defend him against the government.

“This just shows an absolutely terrible board process,” said Alexander Denner, managing director of Icahn Partners Llp. “They should have had independent directors advised by independent advisers.” Denner is one of Icahn’s nominees to Forest’s board. Icahn has criticized the board’s decision to spend shareholder money to defend Solomon. The minutes show Solomon did not vote on the board’s recommendations.

Forest called the move by Icahn to publicize such details a “sideshow” and said the board’s decision to support Solomon was backed by a majority of independent directors advised by outside counsel.

In March, after Suffolk officials approved $2.16 million in tax breaks over the next decade, Forest said it will merge its nine area operations into four buildings in Commack and Hauppauge instead of moving out of state.
With staff reports

Photo: Billionaire financier Carl Icahn.  (May 2007)


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