Retention Agreements

March 14, 2006

Daniel Loeb of Third Point Management often provides entertaining copy in his attachments to Third Point’s public filings. Take for example, his letter to the CEO of Ligand Pharmaceuticals last fall when he filed a 13D. Loeb quoted one analyst as saying that the CEO was “the worst CEO in biotech” and that it was a wonder that the board hadn’t shown both the CEO and CFO the door long ago – "accompanied by a well worn boot planted in the backside”.

Over the ensuing 6 months, Ligand has responded to a number of Loeb’s criticisms (financials were restated [formal SEC inquiry still outstanding], a marketing contract for an important drug was severed, UBS was hired to explore strategic alternatives to enhance shareholder value). The stock is 50% higher than when Loeb began to accumulate his 10% position. The situation has drawn a number of 13G filers, the most recent being Oz Management with 5.5% of the total shares. But what drew my attention was an 8-K filed by Ligand last week announcing that 67 current employees (including a number of executives) had signed agreements with the Company making them eligible for a stay bonus [amount unspecified] if they were still with the Company at the end of the year or if they had been involuntarily terminated before then. While one might conclude that so many retention agreements signaled that a transaction is imminent, the market responded by driving down Ligand’s price the next day from $12.49 to $11.80 on heavier than normal volume.  Yesterday it closed at $11.85.  Caveat emptor.

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