Will Bioniche Life Sciences’ activist shareholders unlock value?

This morning, a dissident group of shareholders of Bioniche Life Sciences (Bioniche Life Sciences Stock Quote, Chart, News: TSX:BNC), led by former Biovail CEO Bill Wells, wrote an open letter to Bioniche Chairman James Rae.

The letter, authored by Wells and Greg Gubitz, former General Counsel and Senior Vice President of Corporate Development at Biovail, points out that despite a share price that has lost 96% of its value since 1996, the same CEO, Graeme McRae, has remained the helm of the company. Under his leadership, notes the letter, Bioniche has never turned a profit.

The group, which says they first contacted Bioniche’s board last summer, says its believes there is “considerable potential” for the company, but that it is “…unfocused, over indebted, burning cash and running out of reserves”. It somewhat cryptically cautions the board to not take any steps that would further impair shareholder value.

Bioniche, in turn, responded this morning to say that it has been aware of the poor performance of its share price, and is taking steps to address it. It says “several strategic partnering and investment-related offers” are on the table, and the company has engaged a investment bank to review them.

“The individuals behind the letter have had access to confidential corporate information within the past few months and have made two overtures to the company that do not favourably compare with the opportunities under review,” said an anonymous director is the press release.

What does this mean for shareholders of Bioniche? With the share price of the company up more than 22% at press time, many are betting good things.

But a recent article on the Harvard Law School Forum on Corporate Governance and Financial Regulation, written by Charles Nathan, and called “Debunking Myths about Activist Investors” says things are not usually as black and white as they may seem.

Nathan says there has been a noticeable rise in activist investing, and the myths about their usefulness, or lack thereof, has risen in turn.

Contrary to their reputation as corporate raiders bent on short term profit, says the author, “Activist investing is often a useful contributor to good corporate governance and a force for company implementation of strategies that enhance shareholder value.”

Nathan says activist investors are often rational and thoughtful, and that a company that is the target of such action should respond with dialogue first.

“Even if dialogue with the activist is not successful,” he says, “if properly handled management should be able to gain useful insights into the activist’s business case, its sophistication and expertise, and its personality.”

Many companies, says Nathan, respond by handling the action like a political campaign, attacking the credentials of its opponents. “There may be a place for negative messaging, but it should not be the starting place,” he says. Companies that are successful in battling activist shareholders are ones that offer a more “compelling and substantive narrative than the activist,” says Nathan.

For Bioniche shareholders, this may mean an increase or decrease in the company’s ailing share price, but it almost certainly means one thing: more press releases whose aim will be to deliver a more compelling narrative from each side.

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