Proxy advisory firm Glass Lewis recommended that Cephalon Inc. (CEPH) shareholders don't support an attempt by Valeant Pharmaceuticals International Inc. (VRX) to unseat its board, something needed for its $5.7 billion hostile offer to move forward.

Mississauga, Ontario-based Valeant has started the process of soliciting Cephalon shareholders to replace the board and has placed a deadline of May 12 to reach a conclusion about whether it has the support it needs. Cephalon has rejected the cash bid of $73 a share as inadequate.

A Valeant spokeswoman said, "although this decision is disappointing, it is not unexpected. We continue to talk to investors and believe many understand the corporate governance issues and remain supportive of our initiative."

A Cephalon spokesman wasn't immediately available for comment.

In its report, Glass Lewis said it found "little reason" to support Valeant. It generally doesn't support removal of a sitting board unless there are serious problems and a dissident has a good plan to help the situation, or the current board has made decisions that are clearly against shareholder interests.

The firm said the Cephalon board "remains in the best position" to determine strategic alternatives for the company and shareholders.

"We find that the incumbent directors have acted appropriately with respect to Valeant's approach and we find no reason to believe that the directors are conflicted with respect to the review process," it said.

In order to unseat the board, Valeant needs a majority vote, or about 37.9 million shares. If successful, Valeant will push the new board to remove a poison pill that blocks a hostile takeover and ask to conduct due diligence.

Reviewing the company's books should take another two to three weeks, Valeant has said, and could result in a "modest increase" in the offer.

Glass Lewis noted that such contentious situations "there remains a possibility that the companies will come to terms on an agreement."

Wall Street is clearly expecting a higher offer from Valeant, or a competing bidder, as the stock has traded above the offer since it became public. It recently changed hands at $76.72, up 9 cents.

--By Thomas Gryta, Dow Jones Newswires; 212-416-2169; thomas.gryta@dowjones.com
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