Investors gird for second attempt to split drug maker. (Up Front).

WELCOME to proxy wars, round two.

Costa Mesa-based drug maker ICN Pharmaceuticals Inc. and its colorful, combative Milan Panic are gearing up for a second battle in as many years with shareholders at odds with the company's direction and reorganization plan.

The situation is set to crest at the end of the month, when new directors are to be elected to ICN's board.

As the skirmish heats up, Panic -- the company's founder, chairman and chief executive who turns 73 this year -- is closer to stepping down from his role.

The onetime prime minister of Yugoslavia started ICN in 1960 with $200 and has built it into a midsize drug maker with more than $850 million in revenue and a market value of $2.3 billion.

But some ICN investors believe the company could have a higher value and that Panic has dragged his feet on a plan to split ICN into three parts.

Earlier this month, ICN launched a public offering of Ribapharm Inc., the company's biotechnology unit that's seen as the crown jewel of the breakup

plan. Ribapharm raised $260 million and rose 8 percent in its first day of trading in a difficult market. But even here there's been controversy: Panic was awarded a $33.1 million bonus last month for his role in the spinoff -- drawing outrage among some shareholders.

After losing a proxy battle for director candidates last year, ICN's management says it is confident it will prevail at the May 29 shareholders meeting. "We expect to win," said Alan Charles, ICN's executive vice president of corporate relations. "It's more the issues than the candidates that are crucial here."

A new group of dissident shareholders argues it has issues on its side.

"We don't believe the company has proceeded either rapidly enough or in a manner that conforms to the spirit of the proposed restructuring," said Tim Rankin, an assistant portfolio manager for Franklin Mutual Advisers LLC of Short Hills, N.J.

Franklin, part of San Mateo-based Franklin Resources Inc., and Westport, Conn.-based Indian Asset Management LLC are leading this year's proxy charge. They own a combined 10 percent of ICN's 83 million outstanding shares.

Panic himself is a big issue for Franklin and Indian. In a filing with the Securities and Exchange Commission, the two investors said, "We believe the continuing role and influence of Milan Panic in the management of ICN is viewed negatively by current and potential investors."

Panic a fighter

Panic has held a tight grip on ICN and fought off prior bids to oust him. The Serbian native, who mixes continental charm with a fighting spirit that dates back to his days in Yugoslavia's Nazi resistance, has tangled with federal regulators and settled several sexual harassment suits.

"We believe (Panic's) presence at the helm of (ICN), his dismissive attitude toward shareholders and his controversial reputation are among the chief reasons ICN's market valuation lags those of its peers and fails to adequately reflect (ICN's) fundamentals," Franklin and Indian said in their filing.

ICN points to its Ribapharm spinoff as evidence of its intent to restructure the company and reward shareholders. It also has changed the way the company is governed, according to Charles. Formal governance policies, including a nominating committee for directors, have been adopted, he said.

Iridian and Franklin contend that the committee was formed only after word came that they planned to back a slate of outside directors.

ICN last year lost a proxy fight to a shareholder faction that included Providence Capital Inc. of New York and Special Situations Partners Inc., an investment fund controlled by Swiss financier Tito Tettamanti, an outspoken critic of ICN's restructuring plans. Last year's battle resulted in the election of three outside directors.

This year, the Iridian-Franklin alliance is backing Richard Koppes, a former counsel at the California Public Employees' Retirement System now at Stanford University Law School. Koppes also is on ICN's slate. Also backed by Iridian-Franklin is Robert O'Leary, former chief executive of Santa Ana-based PacifiCare Health Systems Inc.; and Randy Thurman, chief executive of Viasys Healthcare Inc. of Conshohocken, Pa.

"We spent a considerable amount of effort trying to assemble a high-quality team," Franklin's Rankin said of the slate.

Charles said the company plans to meet with larger shareholders, send letters to shareholders and continue running ads in the Wall Street Journal and Barron's. "It includes responding to mindless attacks," Charles said of the campaign. "It's not easy to drop everything you're doing in a business and start doing this silly stuff."

Also on ICN's management's slate are Birch Bayh, a former U.S. senator and father of current Sen. Evan Bayh, D-Ind., and Abraham Cohen, a retired senior vice president of Merck & Co.

Low-key opponents

According to Rankin, Franklin and Indian see Ribapharm's public debut as a halfstep: "The important step is the ultimate spinoff of Ribapharm" to ICN shareholders.

"We don't believe that Ribapharm proceeded in the spirit of the agreement reached with SSP in October of 2000," Rankin said. "In the proxy materials, we point to certain connections that we find between each of the seven directors of Ribapharm and Milan Panic, as well as certain relationships between Milan Panic and the originally proposed or currently existing executive officers of Ribapharm."

ICN downplays the comments of the two investors, saying they're in it for the short term while management has to take a longer view.

ICN's board is slated to shrink from 12 directors to nine, If the Franklin-Iridian slate prevails, six of ICN's directors will have been put up by dissident shareholders, while only three will be backed by management.

If that happens, Charles said: "Certainly, the future of the company would become rather unpredictable under those circumstances."