Wildcat Capital, which manages funds for the American billionaire David Bonderman, has called for management changes at a pharmaceutical firm, representing a rare public case of shareholder activism by a family office.
In a strongly worded letter, Wildcat raised concerns over corporate governance at Sorrento Therapeutics and said the chief executive, Henry Ji, should be replaced.
The share price at Sorrento has dropped by three-quarters since July, and is at about half the value at which Wildcat bought 2.5 million shares, or 6.5% of the company, in May last year.
In the letter, which is addressed to Sorrento’s board, the president and CIO of Wildcat, Len Potter, complains that Ji “has consistently acted in a manner that is not in the best interests of shareholders and has destroyed significant shareholder value”.
There are few cases where family offices have gone public in their criticism of a company they have invested in, said Catherine Grum, KPMG’s head of family office.
“You might see a family working behind the scenes to try to help, but family offices are very discreet,” she said.
“Usually one of the reasons you have a family office is to give the family privacy and discretion. It’s very unusual to see them putting their head above the parapet and entering into more public dialogue with a business.”
According to a New York Times report, Wildcat manages $1.79 billion for Bonderman, the founding partner of private equity firm TPG Capital, and his family.
Key among Wildcat’s complaints is way Sorrento is said to have moved assets to new subsidiaries and issued shares back to executives and directors through options and warrants for super-voting stock. Potter’s letter states these actions are for the “personal benefit of such officers and directors at the direct expense of the company and its shareholders”.
Other issues raised include “imprudent transactions” over the licensing of assets and investments, and what is described as “a complete inability to exercise financial discipline”.
In a statement emailed to media, Potter said Wildcat were “not activists” and had “tried to be constructive and offered our assistance to Dr Ji”.
“However, after being rebuffed and seeing the continuing actions of Dr Ji and the board, particularly with respect to the recently announced financing and the recent revelation of the option and warrant grants at the subsidiary level, we felt it was necessary to take this step immediately in order to protect and maximise shareholder value,” said Potter.
Among other things, Wildcat said it should be able to nominate three directors to a special committee “to undertake the actions necessary to preserve and maximise shareholder value”. Transactions over company shares should be halted where possible, according to Wildcat, which also said an investment banker should be engaged to sell the company. Failing that, the company should develop a new business plan and “under no circumstances” buy any new assets.