ICN Seeking to Reclaim Yugoslavia Plant

Milan Panic, the controversial chairman of ICN Pharmaceuticals Inc. and former prime minister of Yugoslavia, was in his native Belgrade on Monday trying to regain control of a drug manufacturing plant seized from his company by his nemesis, Slobodan Milosevic.

Panic, 70, who lost to Milosevic in the 1992 presidential election, has been battling to win back ICN’s biggest factory ever since Milosevic’s troops stormed the plant and took control nearly two years ago. The seizure took a huge toll on the Costa Mesa company, which once had generated as much as 68% of its revenue from its Belgrade operations.

Now, after Milosevic conceded defeat Friday to opposition leader Vojislav Kostunica, Panic and ICN are moving quickly to reclaim the plant. Peter Murphy, an ICN spokesman in Costa Mesa, said Monday that Panic interrupted a European business trip to go to Belgrade.

Although Murphy declined to elaborate, press reports in Belgrade indicated that workers at the ICN Galenika plant have asked the company to take over.

The Galenika plant, which produces penicillin and a host of other pharmaceutical drugs, could help ICN reestablish a solid presence in Eastern Europe as long as the political environment remains stable. Investors have always credited Panic for building on his ties to the area, but they believe the risks have not been worth the possible benefits.

“When we first started acquiring ICN [in 1994], we felt that Eastern Europe was an upside for the company,” said Eric J. Miller, co-manager of the Heartland Value Fund, a Milwaukee mutual fund that owns more than 6% of ICN. “And we certainly regard the political developments in Yugoslavia as positive.”

ICN apparently will need to make major investments in the plant to get it up to speed. Panic told Bloomberg News in Belgrade that the company will need to spend as much as $20 million to purchase raw materials and about $30 million to cover other costs at the plant.

The managers appointed by Milosevic’s government “destroyed the factory,” said Panic, a Belgrade native who defected to the West in 1955 while competing in a cycling tournament in the Netherlands “There has to be investment.”

Miller said that adding the Galenika plant would be a positive move, even if it means spending $50 million to get it operating again.

Panic, who served nine months as Yugoslav prime minister eight years ago before being ousted by Milosevic, founded ICN in his basement in Pasadena in 1959. But Wall Street has long been wary of his company.

In recent years, dissident shareholders upset with the company’s operations and languishing stock have tried to remove Panic from his corporate post. Their views were mixed Monday on whether any recovery of Galenika would be valuable to ICN.

But they agreed that it would have little impact on their opposition to Panic and to ICN’s plans to split the company into three publicly traded entities, with two of them controlled by ICN.

“I don’t think it would have any impact regarding ways to enhance shareholder value,” said one dissident, David Batchelder, whose Relational Investors holds a 2% stake in the company. He was added to ICN’s board last year to appease disgruntled shareholders.

ICN stock has soared and plummeted mostly on news about prospects that its antiviral drug, ribavirin, could be used to treat various diseases. Its shares fell 56 cents Monday to close at $33.56 on the New York Stock Exchange.

ICN acquired a 75% stake in Galenika Pharmaceuticals, a state-operated company, in 1991 and renamed it ICN Galenika. The state retained the remaining interest.

The next year, Galenika generated sales of $326 million, about 68% of ICN’s total revenue.

Panic, who has well-developed political and business contacts throughout Europe and Russia, has been the prime mover in the company’s foreign expansion.

But the Galenika operation began suffering from an ongoing United Nations embargo during the long Balkan conflicts and eventually became a drag on business. And in Russia, operations have been hurt by a decline in purchasing power after the ruble began weakening in late 1998 and the economy went into recession.

About two years ago, Yugoslav authorities accused ICN of not living up to terms of the purchase agreement, saying it had invested less than it promised. ICN denied the claim, saying it had fulfilled all its obligations. In February 1999, Milosevic’s troops stormed the plant and took control.

A few days later, workers walked out in protest as the company tried to regain control. Panic, who lost to Milosevic in the 1992 presidential election, eventually sued in a federal court in Washington. The suit is pending.

ICN’s plans for Galenika are barely taking shape.

“I don’t know when we will invest: Sanctions haven’t been lifted yet,” Panic told Bloomberg News in an interview in Belgrade on Monday.

The European Union, which had sought Milosevic’s ouster, lifted some economic sanctions Monday against Yugoslavia, though future aid may be tied to the extradition of Milosevic, who has been indicted in The Hague for war crimes.

U.S. sanctions remain in place, though the government has said it intends to lift them.

ICN said the funds for the investment will come from the company’s operations in Yugoslavia, not from money generated outside the country.