Pfizer threatened to sue renegade executives prior to activist schism, Starboard’s Smith says

Activist Starboard Value accused Pfizer of threatening litigation against the company’s former CEO and chief financial officer in order to get them to break ranks with the investor’s nascent turnaround campaign at the pharmaceutical giant.

Starboard managing member Jeff Smith said in a Thursday letter to Pfizer’s board that the company or its advisors also “threatened” to claw back former chief executive Ian Read and ex-CFO Frank D’Amelio’s past compensation and cancel their unvested shares.

Smith asked that the board assemble a special committee to investigate the matter, describing it as “highly inappropriate, flagrantly unethical, and a significant breach of fiduciary obligations.”

The risk of legal liability was a driving factor in Read and D’Amelio’s public backing of Pfizer CEO Albert Bourla late Wednesday night, said a person familiar with the interactions between the company and the two former executives.

Pfizer shares slipped overnight as news of the two executives’ breakaway emerged, and opened down roughly 2.5% in Thursday morning trading.

Starboard’s Smith said that when the activist approached the two executives, both expressed “concerns” about Pfizer’s direction under Bourla and offered to help Starboard in its turnaround campaign.

Starboard did not respond to CNBC’s requests for comment. A Pfizer spokesperson declined to comment.

Smith and Bourla are slated to meet in person next week, Smith said, confirming earlier reports. The agenda of the discussion could not be learned, but people familiar with Starboard’s thinking previously said Pfizer’s focus on disciplined cost structure and mergers and acquisitions had suffered under Bourla’s leadership.