By Svea Herbst-Bayliss and Michael Erman
(Reuters) -The business clash between Pfizer (NYSE:) and Starboard Value soared on Thursday as the activist investment firm urged the U.S. drugmaker to investigate its board’s actions after two former executives withdrew from the campaign against the company.
Jeffrey Smith, who heads Starboard, urged Pfizer’s board on Thursday to create a special committee to investigate possible “coercive behavior” that may have caused the two executives who planned to work with the hedge fund prompted me to change my mind.
Starboard built a roughly $1 billion position in the company, which has a market capitalization of $167 billion, and said former CEO Ian Read and former chief financial officer Frank D’Amelio were concerned about the company’s path and their help offered.
Starboard alleged that the former executives changed course because people within Pfizer or their representatives contacted Read and D’Amelio and “allegedly threatened to file costly lawsuits against them.”
In a letter to Pfizer’s board, Smith wrote that he had been told about recent events that have put pressure on Read and D’Amelio. If they did not publicly support Pfizer CEO Albert Bourla, they could risk previous compensation clawbacks and unvested performance share cancellations, the letter said.
Hours earlier, Pfizer’s longtime banker Guggenheim Securities said Read and D’Amelio had “decided not to be involved in Starboard’s Pfizer efforts,” adding that they fully support Bourla.
Pfizer did not immediately respond to a request for comment.
The clash statements indicate a widening rift between the two sides before their first meeting, scheduled for next Wednesday.
Lawyers and bankers said hedge funds often rely on help from other big investors during their campaigns, but it was unusual to bring in former managers so publicly and so early.
Smith said in his letter that he hopes for a “constructive collaboration” with Pfizer.
Starboard has not provided details about what it wants Pfizer to do. It only notes that the company’s share price has fallen dramatically since 2019, when Bourla took over as CEO as Read’s hand-picked successor. In the last 52 weeks the share price is down 11%, but is up 4% in the last five days to trade at $29.60.
The hedge fund also pointed out that Pfizer is spending $70 billion on mergers, which some Wall Street analysts have criticized as problematic.
Pfizer is best known for its COVID-19 vaccine, including the erectile dysfunction drug Viagra and the cholesterol-lowering drug Lipitor.
Lower demand for the vaccine after the pandemic has caused Pfizer’s share price to suffer. The company’s shares are currently trading at about half of their pandemic-era highs.
The company has also faced disappointing data on an experimental obesity drug, the weak launch of its respiratory syncytial virus vaccine and the suspension of sickle cell disease treatment Oxbryta due to deaths in clinical trials.
Starboard has previously waged campaigns against healthcare companies, including unsuccessful attempts to thwart Bristol-Myers Squibb’s (NYSE:) bid to buy Celgene (NASDAQ:) in 2019.
