Shareholders in specialty pharma group Meldex have called for assurances that the company will moderate its issuance of new equity to pay for acquisitions, and expressed concern about the depth of due diligence being performed on vendor companies. Their concerns are expected to take centre stage at the company's annual meeting today, ahead of which one of the company's non-executives has resigned.
In 2007, Meldex issued over 44m shares, representing a 23 per cent increase in the number of shares in issue. This year, the company has issued another 13m, and one of the resolutions at the forthcoming annual meeting is seeking shareholder assent to issue up to 100m more. That would take the total shares in issue up to about 340m, yet the company's share price has more than halved in the last few months.
Shareholders, including Meldex founder Barry Muncaster, are becoming increasingly irate that their holdings are being diluted in this way. There are also doubts about a perceived lack of due diligence by the company on the vendors of a business it acquired earlier this year. Meldex announced on Christmas Eve that it would acquire three antibiotic products used in the treatment of respiratory infections from Laboratoires Tonipharm, with payment due in three tranches, one of which was contingent on performance. In late January, the company issued 9.164m shares to Tonipharm "in partial settlement" of the acquisition consideration.
It's not entirely clear whether these shares represented just the first tranche, or the first and second. What is clear is that within days, asset manager Gartmore had acquired 9.164m shares at 45p each - well below the 68p they were fetching in the open market at the time. Gartmore subsequently had both long and short positions in Meldex shares, according to statutory disclosure documents - and it was at this point that Meldex's share price really started to hit the skids.
According to one sector analyst who did not wish to be named, Tonipharm sold the shares on because it was facing financial difficulties of its own. But several shareholders claim Meldex should have anticipated this, and done more to prevent the stock being dumped.
Mr Muncaster claims to have support from shareholders representing 30 per cent of Meldex's capital, and four key shareholders recently met in private with Meldex's chairman Jim Murray and a senior non-executive director, Peter Ibbetson. The company subsequently said it "accepted the strength of feeling" on the subject of equity issuance, but did not offer to withdraw the offending annual meeting resolution. It did, however, pledge to review its communications policy; another shareholder concern is the company's alleged propensity for issuing long and ambiguous press releases.
Mr Ibbetson subsequently tendered his resignation, not in connection with the issues discussed above, but in order to "highlight unacceptable behaviour from a minority of shareholders." This, according to the company "includes a high volume of abusive emails and phone calls...and the dissemination of information which the board believes is often erroneous and misleading."
• Further reporting of the Meldex annual meeting will be available on the IC website later today or tomorrow.
