Loeb Cuts, Highland Boosts Stakes In PDL Battle

Nov 5 2007 | 3:39pm ET

In response to what it says are insufficient measures taken by portfolio company PDL BioPharma, activist hedge fund Third Point has cut its stake in the company almost in half. But another activist hedge fund with similar demands has stepped up its pressure on the Fremont, Calif.-based company.

In a letter to PDL’s board, Daniel Loeb, founder of the New York-based hedge fund, said he had cut his fund’s stake from 9.7% to 5.1% “in light of your continuing refusal to provide us with a voice in the company’s affairs through a board seat.” Loeb has long sought a sale of PDL, and said he was “encouraged” by the board’s announcement it would actively seek such a sale. But he ripped Chairman Patrick Gage, who has served as interim CEO since former CEO and Loeb nemesis Mark McDade resigned this summer, saying he has “demonstrated his unsuitability” for the post.

Unfortunately for the maligned Gage and his cohorts on the board, Loeb’s retreat coincided with the advance of another activist seeking major changes at the company. Dallas-based Highland Capital Management took a 5.2% stake in PDL over the past few months, and fired off a letter in September—filed with the Securities and Exchange Commission last week—with its own set of strident demands.

Highland President Jim Dondero doesn’t just want Gage to give up the CEO’s role; he wants him out entirely, demanding that he resign as chairman, and calling on the board to name former chairman and CEO Laurence Korn to succeed him. In addition, Highland wants an independent director named to fill a vacancy on the board, and for the process of selling the company to be expedited.

“We have attempted to, and will remain available to, discuss the recommendations put forth in this letter,” Dondero assured. But he went on, “That said, we believe the time for dialogue has ended and encourage each of you to honor your fiduciary obligations to the company and its shareholders by expeditiously implementing our recommendations in order to protect shareholder value.”

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