Beware Pfizer's stock right now amid the worsening corporate drama; Check out my new favorite free game online: Uncovered Shorts
1) The activist battle underway at drug giant Pfizer (PFE) is rapidly spinning out of control...
If you've been following along with my e-mails this week, on Tuesday and yesterday I discussed the stock and the recent development with activist hedge fund Starboard Value's big stake in the company.
Last weekend, the Wall Street Journal had more details on the stake: Activist Starboard Value Takes $1 Billion Stake in Pfizer. Of particular interest was this tidbit:
Starboard has approached two former Pfizer executives, Ian Read and Frank D'Amelio, to aid in its efforts, and they have expressed interest in helping, the people familiar with the matter said. Read was Pfizer's chief executive officer from 2010 to 2018 and handpicked current CEO Albert Bourla as his successor. D'Amelio was its chief financial officer from 2007 to 2021.
It's very unusual for former executives, much less the current CEO's predecessor, to join an activist campaign... especially one that will likely be hostile – including ousting the CEO.
Even more unusual is the new development that Reed and D'Amelio have changed their minds about supporting Starboard – and the hedge fund is crying foul. This WSJ article from yesterday has more details: Activist Accuses Pfizer of Pressuring Former Executives. Excerpt:
Hours after two former top Pfizer executives said they would no longer participate in Starboard's activist campaign, the investor accused the drugmaker of pressuring the executives to remain loyal to their longtime employer.
Starboard called on Pfizer to conduct an investigation into the withdrawals of former Chief Executive Ian Read and ex-Chief Financial Officer Frank D'Amelio.
The investor lobbed allegations that the ex-Pfizer executives were threatened with lawsuits, clawbacks of compensation and other measures unless they publicly supported Pfizer CEO Albert Bourla...
Starboard asked the board to establish a special committee of board members to investigate the allegations.
"We believe this behavior is highly inappropriate, flagrantly unethical, and a significant breach of fiduciary obligations," Starboard said.
Adding further intrigue to the story, the Financial Times reported yesterday that Pfizer got wind of Starboard's plans thanks to a shocking gaffe by D'Amelio: Starboard plotted a campaign against Pfizer's chief. Then a blank email dropped in his inbox. Excerpt:
The email from Frank D'Amelio, his former finance chief who had left the drugmaker abruptly three years earlier was blank, but it copied in another recipient: a representative of Starboard Value, the hedge fund that has waged activist campaigns against some of corporate America's biggest names, from Bristol Myers Squibb to News Corp. Three other Pfizer board members received similar blank emails from D'Amelio in quick succession.
The puzzling correspondence, which seemed to be a fat-fingered gaffe, was Bourla's first hint of the drama that was about to engulf him. The story of what followed – pieced together from interviews with 10 of the investors, advisers and insiders involved – adds up to one of the most volatile, high-stakes activist campaigns in years.
D'Amelio's mistake gave Bourla time to take quick action to head off Starboard, which hadn't planned to reveal its campaign until October 22. Here's more from the FT:
One seemingly accidental click of a button had unveiled Starboard's plan to take aim at the 175-year-old industry leader and its chief executive, who not long ago had been exalted for his role in taming the worst pandemic in a century.
An even bigger blow for Bourla was that D'Amelio and Ian Read, his predecessor as chief executive who had promoted him into the top job, were conspirators in the plot.
Bourla and three of his longest-serving directors − Adobe CEO Shantanu Narayen, erstwhile Deloitte boss Joseph Echevarria and Intuit chair Suzanne Nora Johnson − were soon fielding calls from the two former executives. They urged Bourla to listen to Starboard − which pointed the blame for Pfizer's underperformance squarely at him.
And as the FT continues, Starboard's activist campaign has now been derailed:
To one veteran of several activist defences who knows Read and D'Amelio but is not involved in the fight between Starboard and Pfizer, the tumultuous events added up to "the worst first week in an activist campaign in the history of Wall Street".
"The angle was Ian and Frank. Now they are just a minnow taking on a huge company with a below 1 per cent stake," he said, adding that he thought the two executives had "got in over their skis", and were concerned about becoming the focus of the story.
According to three people briefed on their thinking, Read and D'Amelio had assumed there was board dissent against Bourla, which has failed to materialise. The veteran dealmaker dismissed Smith's letter as a "desperate, last-ditch attempt" to create space between the CEO and his board "which didn't seem to be there".
You don't often see such dramatic blow-ups like this. And all of this drama makes me even more convinced that Pfizer belongs in my "too hard" basket – it's more reason to stay away from the stock right now.
That said, I would still be open to hearing Starboard's plan when it releases its 50-page slide deck. But I suspect the key element of it, replacing Bourla, is now dead on arrival.
My friend, Yale School of Management Professor Jeffrey Sonnenfeld, and his colleague Steven Tian think this is for the best, as they defend Bourla in this column in Fortune yesterday: Here are the facts that activist critics of Pfizer CEO Albert Bourla are missing, according to a Yale analysis. Excerpt:
We don't know for sure what Starboard's turnaround plan contains. It has allegedly created an "extensive 50-page slide deck on its turnaround plans" which it is yet to reveal publicly. But one can easily guess what the primary complaints about Bourla might be since these criticisms have now been repeated so many times in anonymous leaks to the media: that Pfizer stock has gone sideways under Bourla's watch; that he supposedly overpaid in several major acquisitions and squandered tens of billions of Pfizer's COVID-19 vaccine windfalls; that Pfizer's business is in deep trouble after the demand for COVID vaccines fell off faster than anyone thought possible.
There's just one problem: These criticisms are simply not factual, no matter how many times they may be repeated, as we reveal in our original detailed analysis and 36-page slide deck.
This excerpt from the FT article captures my view:
Wall Street has been eager for change at Pfizer, but even before Read and D'Amelio split from Starboard, analysts and shareholders were sceptical that the typical activist investor playbook would work on the struggling pharmaceutical company.
Under Bourla's leadership, the drugmaker hived off its consumer-health division and cut $5.5 [billion] of costs in response to plummeting Covid revenues, while the debt left over from its acquisition spree limits its ability to pursue promising biotech buyouts.
"There's no low-hanging fruit. If a company is overspending, you can stop the overspending. If a company has too much fat, you can cut the fat. Pfizer doesn't have that," said one top-10 investor, adding that they thought it was unlikely much would change as a result of Starboard's campaign.
2) A hit tip to my friend Eric Rosen who introduced me a couple of weeks ago to a quick, fun, interesting online game called Uncovered Shorts.
Every day, you get a new set of four business-related questions, each worth 100 points. And it's free to play! Here are today's questions:
For the questions that have multiple answers, the goal is to get the correct answer that is least picked by the other people playing the game.
So, for example, the highest-scoring answer to the question, "Countries with 10 or more Ikeas," was Poland, whereas the U.S. got a lower score.
After I started playing, the founder of Uncovered Shorts, Tucker Dona, reached out and told me the story of his career and move from New York City to Texas:
I grew up in Amish Country, PA with no real exposure to finance until I started interning with JPMorgan in college. I then spent most of my career at JPMorgan in some form of derivatives or another. I grew up in the CDS [credit-default swap] space, moved over to Rates ahead of the global financial crisis and for a bit afterwards, and then ran parts of their Futures & Derivatives Clearing business for several years.
I left JPM in 2020 more for a lifestyle change – my wife and I met training for Ironmans and are very outdoorsy. After having our first child in 2019, we were ready to leave NYC. We ended up moving to Austin, TX in the middle of COVID. I am now an exec at a small fintech in the institutional payments space called Baton Systems.
As for the game, he told me:
I came up with the idea for Uncovered Shorts about six months ago. I felt there was a market for more niche, intellectually challenging daily games. I hired a freelance developer and worked with him for a couple of months to develop the game.
I ran a marathon in Vermont at the end of May, for which training consumed a lot of my free time... so I planned the first games to go live in June. Uncovered Shorts was very barebones at first and there were about 20 people playing. But I was getting a lot of great feedback from those early players. I spent the summer adding features – group leaderboards, an archive of old games, the e-mail signup, leisure games on the weekends, etc. And I've only recently focused on trying to get the word out more broadly.
And as he continued:
There are about 1,000 games played every day and growing. Work teams have created their own group leaderboards to compete against one another. Since I saw your Harvard note the other day... the very unofficial HBS trivia team has their own group leaderboard. Families are competing against each other. My NYC triathlon training group has a leaderboard, as does my running group in Austin.
For me, it has been a lot of fun to run with an idea from scratch and see it become part of many people's daily routine.
Thanks for sharing, Tucker. Again, Uncovered Shorts is a fun, free game... check it out!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.