Penwest Pharmaceuticals (NDAQ: PPCO) may see some changes during the next annual meeting after a large shareholder proposed a new slate of directors for the board. Perceptive Life Sciences, Tang Capital Partners, and their affiliates collectively own 37.5% of the pharmaceutical company and nominated Joseph Edelman, Keven Tang, and Andrew Levin to the board at the 2009 annual meeting.

Investors should be careful before they vote in the new board members, however. Some rhetoric contained within a Schedule 13D filing with the SEC raises some questions. The funds commented:

While we strongly believe that changes to the board of directors are in the best interest of all shareholders of the company, … [we] may receive unique benefits if the nominees set forth herein are elected to the board. Such unique benefit will, if realized, result from the fact that the nominees are principals within our respective organizations and may be more receptive to our suggestions than any of the members of the board not affiliated with us.

These nominees may prove to perform better than the existing board, but the risk is that the principals will act in a more selfish way by promoting their own returns. Such deals could include financing deals between the company and hedge fund on above-market terms, the sale of assets to the hedge funds at below-market prices, and other actions that destroy shareholder value. The question for investor is: Is the risk worth it?

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Tikcro Technologies, Ltd. (OTC-BB: TIKRF) board members may be in for a fight after a large shareholder made several demands. Steven Bronson, who owns a 14.9% stake in the company, sent a letter to the board of directors demanding that it schedule a special meeting so that shareholders could vote on three proposals that it put forth in a Schedule 13D filing with the SEC.

The activist investor proposed three things:

1. Distribute $7.7 million of the approximately $7.9 million of the company’s cash and short-term investments to the shareholders of the company on a pro rata basis.
2. Distrubte the company’s BioCancell securities to the shareholders of the company on a pro rata basis.
3. Maintain the company as a public shell with $200,000 in cash to pay operating expenses while trying to consummate a sale or merger with a viable business.
   

The cash distribution would result in a distribution of $0.91 per share given the 8.45 million shares outstanding. Meanwhile, BioCancell’s securities are not publicly traded, but their value could increase substantially in the event that it does go public. Given the current share price of just $0.50 per share, this could represent opportunity for investors who believe that the proposal will pass.

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Aladdin Knowledge Systems Ltd. (NDAQ: ALDN) shares jumped sharply earlier this week on media reports of a pending sale, but investors may want to wait for some solid numbers before taking action. Israel’s “TheMarker” reported that the security software provider may be sold to an affiliate of Vector Capital for $11 to $12 a share – well above the stock’s current trading price.

The numbers are mere speculation, however, given the deterioration in the financial markets. Originally, Aladdin received a non-binding proposal from Jasmine Holdco LLC, the affiliate of Vector, to buy all of Aladdin’s shares for $14.50 per share. However, the deal failed to materialize to date as the financing environment has presumably deteriorated for the acquiring company.

Regulatory filings show that it is unlikely that Jasmine will back off, however. The Vector Capital disclosed a 14.17% stake in the security company. The same regulatory filing also showed that the company extended its standstill agreement with Jasmine in order to presumably complete the financing on the deal. The large stake and agreement to extend are two signals that a deal is definitely in the works.

Investors are now waiting for a special meeting of the shareholders slated for January 9, 2009 where the terms of the deal are expected to be released. The price remains up in the air…

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