Exclusive-Catalent nears settlement with Elliott for board seats -sources

By Svea Herbst-Bayliss and Maggie Fick

(Reuters) -Catalent Inc is close to reaching a settlement with Elliott Investment Management that would lead to a shake-up of the U.S. contract drug manufacturer’s board of directors after its share price lost half of its value in the last year.

The company is poised to agree to add four new directors proposed by Elliott to its board, which currently has 12 members, people familiar with the situation said on Monday.

The sources declined to be identified because the information is confidential and cautioned a deal could still collapse at the last minute.

Spokespeople for Catalent (NYSE:) and Elliott declined to comment.

The stock price jumped nearly 6% in after hours trading.

The deal would allow Elliott, one of the industry’s busiest activist investors, to help sway Catalent’s strategy at a time the company has been the target of takeover interest from both private equity firms and strategic buyers. Earlier this year, Danaher (NYSE:), which on Monday agreed to acquire Abcam, was reported as a possible suitor.

Catalent, which is valued at roughly $8 billion and played a critical role during the pandemic to fill vials with the COVID-19 vaccine for several companies including AstraZeneca (NASDAQ:), Johnson & Johnson (NYSE:) and Moderna (NASDAQ:), has grappled with a variety of problems recently.

Its chief financial officer left in April, when the company warned “productivity issues” and higher-than-expected costs at three of its manufacturing sites would hit fiscal 2023 results.

Catalent also warned in June when it released thrice-delayed quarterly earnings that the corrective actions it was undertaking to address quality control lapses identified by U.S. drug regulators at its Brussels factory required more time to fix.

    The company is scheduled to report quarterly earnings before the U.S. market opens on Tuesday.

In the past when Elliott has pushed for sales of pieces or the entire target company, including at eBay (NASDAQ:) and Switch (NYSE:) Inc., and then won board representation, significant ownership changes have followed. Sell side analysts, including Deutsche Bank, note that Danaher, which is valued at $193 billion, has untapped M&A capacity even after buying Abcam.

Elliott isn’t the only activist investor that had bought into Catalent this year with regulatory filings showing that Keith Meister’s Corvex Management and Scott Ferguson’s Sachem Head Capital Management owned shares in the company at the end of the second quarter.

Despite Catalent’s operational and regulatory problems, several investors said there is value in the company given its role in meeting big pharma companies’ demand for outsourced manufacturing.

Novo Nordisk (NYSE:)’s weight-loss drug Wegovy is filled by Catalent’s Brussels factory and last week Reuters reported that Catalent’s plant in Bloomington, Indiana will begin filling Wegovy injection pens for Novo.

Elliott this year pushed for changes at cloud computing company Salesforce (NYSE:) where a proxy fight was averted when the company announced better returns and a host of measures to cut costs. It is also pushing to oust NRG CEO Mauricio Gutierrez.