Bioval Founder Opposes Merger With Valeant

Biovail Corp.'s (BVF) founder is joining some California government officials in opposing the company's merger with Valeant Pharmaceuticals International Inc. (VRX).

Eugene Melnyk, owner of the Ottawa Senators hockey team, sold the bulk of his Biovail holdings earlier this year in pursuit of a new biotech venture. But he's obviously still keeping an eye on Biovail, a company he built from zero revenues into what became Canada's largest publicly-traded pharmaceutical company.

In a letter to the U.S. Securities and Exchange Commission, Department of Justice, and the boards and chief executives of both Biovail and Valeant, Melnyk says he felt compelled to express his "profound concerns" about the merger, which is technically the acquisition of Valeant by Biovail.

Melnyk stepped down from Biovail's chairman and chief executive posts in mid-2007, and attempted to overthrow the board in a proxy contest because of serious objections to management's new strategy in specialty neurology, which he called "pharmaceutical suicide." He wasn't successful in the campaign.

"By entering into this strictly financially-driven transaction, the management of Biovail and Valeant can engineer their balance sheet and income statement and hide the fact that their strategy has not and will not be successful and that they will no longer be accountable for the misguided course upon which they embarked," Melnyk wrote in a letter viewed by Dow Jones.

Melnyk echoes concerns raised recently by California officials. In the last few days, California Assembly Members Kevin de Leon and Jared Huffman wrote to the SEC and DOJ asking the regulators to investigate the merger because of the new company's potential to avoid paying taxes and resulting job losses in California. The Assemblymen also questioned how the same investment banks that provided "fairness opinions" for the merger could also broker a debt financing for Valeant that's key to the transaction.

In addition, Darrel Steinberg, president of the California State Senate, and John Perez, speaker of the California State Assembly, co-signed a letter to the SEC and DOJ that also asks them to probe the pending merger in anticipation of major cuts to Valeant's workforce.

Melnyk goes on to say that he accepts some responsibility for the state of Biovail today, as many of the executives in charge were selected by him, such as the appointment of Douglas Squires as chief executive, who later became chairman. "I retired too early," he said.

He also took issue with change of control payments being paid to Biovail executives, including $25 million to chief executive Bill Wells--first reported by Dow Jones--even though the company admits that there is technically no change of control resulting from the transaction as defined in severance agreements.

He closes by saying that, once the deal is done and the "bonuses are paid" and the "taxes are funneled away," the company's lack of an "executable" pipeline of pharmaceuticals to develop will remain.

Officials at Biovail declined to comment.

Shareholders of Biovail and Valeant are scheduled to vote on the merger at separate meetings in Toronto and New Jersey Monday.

-By Andy Georgiades, Dow Jones Newswires; Andy.Georgiades@dowjones.com

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