PDL BioPharma Inc. (Nasdaq: PDLI) rose nearly 10% this week after Daniel Loeb's Third Point LLC disclosed a 9.7% stake in the company and enclosed a tell-all letter to the board slamming the company's gross mismanagement. The letter not only called for the immediate termination or resignation of CEO Mark McDade but also revealed a possible covered up $30/share buyout offer for the company!



Public pressure to reduce excessive spending and replace management has been mounting on PDLI since its stock price dove 40% last year making it the second worst performer in the entire biotechnology index. And since Third Point's involvement in the company, shares have rallied over 20% showing strong support for the changes they have suggested. It appears that a day of reckoning is finally drawing near that could unlock significant value for shareholders – let's check out how!

Cleaning Up Management
Third Point made it clear in their letter that without Mr. McDade's management blunders and wasteful spending, PDLI shares would significantly appreciate in value. The hedge fund also contacted several other mid-sized pharmaceutical and biotechnology companies to gain insight. He found that the feedback from these parties confirmed his belief that what PDL has enviable assets but desperately needs financial discipline and new management.

Third Point stated in their letter that there is no better example of McDade's "empire building" philosophy, pathological selfishness and poor business judgment than his decision to build out PDL's absurdly large and unnecessary new $100 million corporate headquarters, dubbed the "Taj Mahal". Not only was this building deemed completely unnecessary and imprudent by financial advisors, but it also marked a longer commute for the company's employees. So, why build it? Apparently, the new headquarters is closer to McDade's residence and provides him with a slip for his yacht – a fact that he was apparently fixated on.

M&A Mayhem!
The bombshell in Third Point's letter was clearly the premium offer that the company reportedly rebuffed. The hedge fund said that it learned from sources they deem to be reliable that PDL received a takeover bid for more than $30/share (approximately 30% above the current stock price), which Mr. McDade effectively dismissed out of hand as being grossly insufficient. While not all shareholders agree with selling the company – even at that price – clearly there should be at least some consideration given to an offer with such a large premium attached!

The move also underscores the sentiment of other companies with regards to PDL's management and assets. There is obviously a strong, widely-held belief that the company has strong assets that are being depressed by imprudent spending and mismanagement.

Where to Now?
Third Point also offered several of its own ideas for the company in its letter. Obviously their primary goal is to remove Mr. McDade from management and give shareholders greater presence on the company's board of directors. This would enable the company to drastically reduce its spending and immediately add to its bottom line net income.

Secondly, the hedge fund proposed that the company explore strategic alternatives. Specifically, Third Point suggested that the company examine splitting into two publicly traded entities – one a commercial operation and the other an R&D company. They believe that material incremental value could be created through such a separation. Moreover, the hedge fund noted that if any bidding interest still exists for the company, it should be carefully weighed against the present value of the company in a scenario where it executes its long-term operating plan under new, better-qualified management.




Overall, the hedge fund said they are confident that they have the support of a majority of PDLI's shareholders, and clearly have the support of a large number of sell-side research analysts. This enormous amount of public pressure may finally be enough to enforce change and unlock value in the company – which makes PDLI a stock worth watching closely!

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