Knight Therapeutics Inc. sent an impassioned circular letter to its shareholders Thursday morning, imploring them to vote against the “discombobulated scheme” of an activist who launched a proxy fight at the pharmaceutical company earlier this week.
In a 64-page letter, Montreal-based Knight lashed out at Medison Biotech Ltd. CEO Meir Jakobsohn, alleging that the Israeli executive launched a public campaign against Knight and its leadership because he himself wants to take control of the company.
“Essentially, Mr. Jakobsohn, a 7% shareholder of Knight, wants to take over the board to remove Jonathan Goodman, our founder and CEO, from the company and to gain access to Knight’s cash reserves,” the letter said. “Why? Because he needs to prop up Medison, his own private company in Israel, which has made less and less money each year since our 2015 investment.”
Medison became the second largest shareholder in the Montreal-based Knight in a 2015 deal that also saw Knight acquire 28 per cent of Medison’s shares. The partners had a falling out last year when Jakobsohn requested a separation, according to Knight, because his proposal would’ve “had Knight shareholders suffer a significant financial loss and Mr. Jakobsohn enjoy a significant gain.”
Jakobsohn launched a proxy fight this week, nominating five new board members for shareholders to vote on at an upcoming meeting, one month after he went public with concerns about Knight’s conservative business strategy not yielding any rewards for shareholders and potential conflicts of interest involving Goodman. The Knight CEO has a considerable stake in Pharmascience Inc., a competitor which is also owned and operated by his brother and father.
Along with introducing a new board of directors, Jakobsohn proposed a by-law that would ban officers in the corporation from performing their roles if they have material financial interest in a competitor.
According to Knight, the proposed by-law is simply an attempt to disqualify Goodman from his role. It would either result in Goodman having to divest from his shares in Pharmascience or stepping down as CEO of Knight — something he has refused to do after Jakobsohn’s repeated demands.
It doesn’t appear as if selling his shares in Pharmascience is an option for Goodman either, according to the letter. Goodman is a shareholder in a minority holding company which owns the Pharmascience shares. There’s no market for the holding company’s shares, the letter states, and the only way the Knight CEO could actually divest from Pharmascience is if it were sold outright.
Although Knight dismissed Jakobsohn’s allegations, calling them “no more than a red herring,” while stressing multiple times that Goodman has invested $70 million of his own funds into the company, it did move to dissuade shareholders of any lingering thoughts on the issue.
“The mere suggestion that a conflict could exist has been a call to action for Mr. Goodman,” the letter said.
Knight announced in the letter that as of Thursday, Goodman entered a blind voting trust agreement with respect to the shares he owns of Pharmascience in his family holding company. Not only did Goodman give up his ability to vote under the agreement, he agreed to have a de-facto firewall placed around him and to be barred from accessing any non-public information.
Along with addressing Jakobsohn’s allegations, the circular letter served to introduce two new names in the list of board of director nominees Knight will be putting forward to shareholders.
The crucial vote is scheduled to take place in May.
