ICN Planning Merger With Three Affiliates : Reorganization: Analysts applaud O.C. drug maker’s proposal, which would eliminate duplication and reduce taxes.

COSTA MESA —  To streamline its operations, ICN Pharmaceuticals Inc. said Tuesday that it plans to merge with its three affiliates, creating a new company with $500 million in annual sales.

If shareholders and federal regulators approve the proposal, the new company, which would keep the name ICN Pharmaceuticals, would begin trading on the New York Stock Exchange this fall.

“Truly, this will increase value for all our shareholders,” said Milan Panic, chairman of ICN, who would head the consolidated company as chairman, president and chief executive officer. Adam Jerney, now chief operating officer, would keep that position.

The proposal would merge ICN with SPI Pharmaceuticals Inc., Viratek Inc. and ICN Biomedicals Inc. ICN is now part-owner of the other three companies. All four are based in Costa Mesa and are publicly traded. Panic is chairman of all four.

Analysts and shareholders applauded the proposal as a positive move for ICN, which vowed earlier this year, after winning a bitter proxy battle against dissident stockholder Rafi M. Kahn, to be more attentive to investors’ concerns.

“I think it’s an outstanding program. Given the uneven management this company has shown, I’m surprised they’ve come up with something as intelligent as this,” said Seth Glickenhaus, a partner in Glickenhaus & Co. of New York, an investment fund that owns a chunk of ICN stock. “It focuses their attention in one direction instead of four, reduces debt costs and has substantial tax savings.”

Even Kahn praised the plan. “I view this as a very positive development for shareholders of all the ICN family of stocks,” said Kahn, a former Beverly Hills stockbroker who launched his crusade for control of ICN last year, blaming Panic for wasting corporate funds on luxuries and paying himself millions of dollars a year while the company performed poorly.

Specifically, the merger would save money by streamlining management to eliminate duplication, reducing accounting and auditing fees, and lowering income taxes. It would also reduce debt; ICN officials said Tuesday that much of the four companies’ long-term debt would be refinanced at lower interest rates.

Under the merger plan, which has not yet been filed with the Securities and Exchange Commission, ICN and Viratek stockholders would receive one share of the new company for about two of their current shares. SPI stockholders would receive one new share for each old share, and ICN Biomedicals’ investors would get one new share for five existing shares.

The new company would have a 17-member board, 15 of whom would be outside directors.

Tuesday’s news did little to affect ICN’s or the affiliates’ stock prices, which had risen sharply Monday in anticipation of the announcement.

ICN shares fell 37.5 cents to close at $10.12 in New York Stock Exchange trading. SPI Pharmaceuticals lost $1.25 to close at $19.75 a share, and Viratek Inc. slid 75 cents to $10 a share on the American Stock Exchange. ICN Biomedicals was up 37.5 cents on the American Exchange to close at $3.875 a share.

Analysts and brokers said they are encouraged that ICN’s management has started considering its investors.

“It’s the first time in my memory where management, after going through a brutal proxy battle . . . listened to what shareholders were saying and implemented plans and programs,” said Dave Harvey, a broker with Princor Financial Services Corp. in Odessa, Tex., and an owner of ICN stock for more than five years.

Other analysts said the company’s long-term success hinges not so much on management changes as on whether it receives approval from the federal government to sell its flagship drug, Ribavirin, as a treatment for hepatitis C, a liver disease. The potential market for such a drug, analysts say, could be as much as $500 million a year.

ICN spokesman David Calef said the company submitted its application to the Food and Drug Administration on June 1, and it is under review.

Dennis Roth, an analyst with the brokerage Northeast Securities in Great Falls, Va., said Ribavirin “has very interesting possibilities if they can get it approved. . . . It will be a real boon to the company.”

Jack Hicks, a shareholder from Lufkin, Tex., who attended ICN’s annual meeting earlier this year to push for changes, said he is pleased.

“Everybody I’ve talked to is elated,” he said. “In combining these four companies, they’ve come up with an outstanding plan.”

Still, Hicks suggested that the consolidation might make ICN more attractive as a takeover target.

Chairman Panic agreed. “We’re vulnerable,” he said. “But we’ve demonstrated a record of hard work and toughness, maybe excessive toughness. I’ve fought many battles--from Bosnia to proxy battles. We’re known as good fighters.”

Panic has been a controversial, high-profile figure. In 1991, he agreed to pay $600,000 to settle a civil complaint from the Food and Drug Administration, which said he improperly promoted the company’s drug Virazole as a treatment for AIDS.

He left ICN in 1992 to become prime minister of Yugoslavia, saying he hoped to bring an end to that country’s civil war. He left Yugoslavia nine months later after a no-confidence vote and returned to the company.

ICN Set to Grow

ICN Pharmaceuticals has announced a plan to merge with three of its affiliates. The new company will retain the name ICN Pharmaceuticals. A look at the new company and how ICN stock has been performing during the past few months:

ICN AT A GLANCE * Founded: 1960 * Headquarters: Costa Mesa * Chairman and CEO: Milan Panic * Merger partners: SPI Pharmaceuticals, Viratek and Biomedical * Projected sales: $500 million * Board membership: 17-member board of directors; 15 will be from outside the company * Products: Pharmaceuticals, diagnostic tests

MARKET PRICE

ICN’s monthly closing stock rebounded from a June decline: Tuesday’s close: $10.13

Source: Dow Jones; Researched by JANICE L. JONES / Los Angeles Times