Famed shareholder activist investor Carl Icahn is a big fan of shareholder rights ... except, it seems, when it comes to the rights of minority investors in companies Icahn controls. Take the case of Cadus Corp.:
Matthew Crouse of Salt Lake City ... sank roughly $190,000 into Cadus Corp., a classic "value" stock. The tiny company was selling for less than the amount of its cash minus debt.
Another reason Mr. Crouse was attracted to Cadus: Its largest shareholder was Carl Icahn, the renowned activist investor who has shaken up such companies as Texaco, Yahoo and Lions Gate Entertainment. On July 1, after 17 years as Cadus's most powerful director, Mr. Icahn ceded his board seat to his son Brett.
Cadus, with a market value of only $19 million, has no employees, no operations, and just $100,000 in annual revenue from biotechnology discoveries that it sold a decade ago. Yet the company is sitting on $24 million in cash, plus more than $28 million in tax benefits that could be used to shelter future earnings.
In order to use those benefits, Cadus needs to acquire or merge with another company that produces profits. Complicating matters, the tax benefits begin to expire this year, with $10 million lapsing by 2012.
In February 2009, Mr. Crouse wrote to Cadus, requesting that the board sell the company and return the cash proceeds to investors. He drafted a resolution to that effect, which he asked the board to include in Cadus' proxy statement when shareholders were next asked to vote.
Yet Cadus didn't hold an annual meeting last year. One large shareholder says that "time and again, we have brought opportunities [for mergers or acquisitions] to the attention of the board." Each time, he says, the suggestion was rebuffed or ignored. "It's been a decade of complete nonaction," he says.
A little over a week ago—17 months after Mr. Crouse's letter—Cadus informed him that it will hold its annual meeting on Oct. 6, that his resolution will be included and that the board will recommend that shareholders reject it.
"My goal is to get it on Icahn's radar screen so that he'll need to deal with us, not just ignore us," Mr. Crouse says. "If you push for shareholder activism in other companies, I'd think you'd want to take care of your own."
Icahn's behavior here is a classic example of entrenched management by a controlling shareholder. Interfering with the shareholder franchise by failing to have an annual meeting, opposing shareholder resolutions, refusing to meet with concerned shareholders, cash hoarding, nepotism, and so on.
I'd like to see Lucian Bebchuk or Nell Minow or Robert Monks explain this one. After all, isn't sauce for goose also sauce for the gander?
