War of words continues in proxy battle between Biovail, Melnyk-led shareholder group

By Lisa Kerner

Charlotte, N.C., June 19 - The Concerned Shareholders of Biovail Corp. said the previously announced recommendation of Proxy Governance, Inc. to vote for the company's director nominees should be ignored because the proxy advisory firm failed to contact the shareholder group before issuing its report.

According to a Concerned Shareholders statement, Proxy Governance's best practices policy states that it "often confers with both proponents and issuers to ensure the accuracy of data, and to obtain an in-depth understanding of matters and positions."

It was reported on June 18 that according to Biovail, Proxy Governance said "the dissidents provide little evidence that the current board mismanaged the company."

"It is baffling that Proxy Governance did not make so much as a telephone call to at least hear our side of the issue," a spokesman for the shareholder group said in the statement.

Despite its attempts to contact Proxy Governance to question the report, the Concerned Shareholders group said it was told that nobody in the research organization was available.

Biovail had cited the report as saying, "The product pipeline may have atrophied, and share prices have certainly declined, since [Eugene] Melnyk stepped down as CEO in 2004 - but Melnyk, who remained executive chairman for several more years, bears considerable responsibility for that atrophy and decline."

The Concerned Shareholders, which is led by Melnyk, called the conclusion that Biovail's current business problems are the responsibility of anyone other than the current board and management "curious."

In its statement, the shareholder group said Biovail's stock has declined by almost 50% in the last 12 months, its pipeline of new products has dried up and its relationship with the U.S. Food and Drug Administration is in "shambles."

Based on Proxy Governance's past criticism of corporate boards granting bonuses to executives of poor-performing companies, the shareholder group added that it is "baffling" that it endorses Biovail's current board.

Glass Lewis report disputed

Biovail, in a statement issued on Thursday, reminded shareholders that the Glass Lewis & Co. report recommended "withholding votes from the entire slate of dissident nominees" due in part to their affiliation with Melnyk.

Shareholders may have been confused or misled by "the incomplete information issued earlier" by the Concerned Shareholders, Biovail said.

However, the shareholder group said in its statement that "the Glass Lewis report, which recommended that shareholders do not vote for any of Biovail's incumbent board member nominees, did recommend on page 16 of their report that shareholders vote for two Concerned Shareholders' nominees."

A prior shareholder group statement said that Glass Lewis recommended a vote for two of its nominees, Joseph J. Krivulka and Laurence W. Zeifman, and recommended withholding votes from the other eight nominees on the Concerned Shareholders' slate.

Shareholders must vote for an entire slate, the group noted.

Over the past few weeks, Biovail has been locked in a proxy battle with the shareholder group.

Melnyk has reached out to the Toronto pharmaceutical company's shareholders through the betterbiovail.com web site, accusing Biovail CEO William Wells of trying to distract shareholders from the real issues - which Melnyk said include the track record of the incumbent director nominees and their lack of experience.

Biovail asked shareholders to ignore what it described as Melnyk's latest efforts to take control of the company and to vote for Biovail's "experienced and independent" board members.

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