Bausch Health’s Shareholder Rights Plan: A Strategic Defense Against Icahn’s 34% Economic Stake

Bausch Health Companies (NYSE:BHC) has taken a decisive corporate governance step by supplementing its proxy statement to disclose activist investor Carl Icahn’s 34% economic stake in the company, combining direct ownership and cash-settled equity swaps. The filing, paired with the adoption of a Shareholder Rights Plan (SRP), reveals a complex standoff between Bausch’s leadership and one of Wall Street’s most aggressive activists. Here’s what investors need to know.

The Icahn Stake: Swaps, Shares, and Structural Leverage

The supplement details Icahn’s 34.0% economic exposure to Bausch Health, split into two components:
- Direct Ownership: 34.7 million shares (9.4% of outstanding stock).
- Equity Swaps: Cash-settled agreements covering 90.7 million shares (24.6%), executed over 100 trades between May 2021 and September 2023.

Crucially, the swaps—maturing in February 2028—do not grant voting or control rights, allowing Icahn to avoid regulatory disclosure thresholds tied to beneficial ownership. This structure lets him bet on Bausch’s stock performance without overtly influencing governance.

The Shareholder Rights Plan: A 20% Firewall Against “Creeping” Activism

To counter Icahn’s influence, Bausch Health adopted an SRP on April 14, 2025, which prohibits any shareholder from acquiring 20% or more of the company’s common stock without Board approval. The plan explicitly aims to deter scenarios where a large stakeholder might “creep” into control through financial instruments like swaps while avoiding voting power.

The SRP’s 20% threshold places Icahn’s direct ownership (9.4%) safely below this limit, but his total economic exposure (34%) highlights the tension between financial leverage and governance.

Paulson’s Bonds and Governance Conflicts

The filing also addresses John Paulson, Bausch’s Chairman, who holds $50 million in corporate bonds acquired prior to rejoining the Board. While Paulson’s bond position was deemed non-disclosable under SEC rules, he has pledged to divest these holdings once trading windows reopen. This move aligns with governance best practices, ensuring Paulson’s interests as Chairman do not conflict with his role as a bondholder—a critical step in maintaining investor trust.

Implications for Investors

1. Structural Activism: Icahn’s use of swaps underscores the growing trend of activists leveraging financial instruments to exert pressure without triggering traditional governance safeguards. His 34% economic stake represents a significant bet on Bausch’s value, but his lack of voting control limits his ability to push for immediate changes.
2. SRP Efficacy: The 20% threshold ensures the Board retains negotiation power if Icahn seeks to convert his economic exposure into voting influence. However, the SRP’s long-term impact hinges on whether it deters or provokes further activism.
3. Paulson’s Role: His swift action to divest bonds reduces conflicts of interest, but the episode highlights the need for transparency in corporate governance, especially when leadership holds dual financial stakes.

Conclusion: A Balancing Act Between Defense and Value Creation

Bausch Health’s moves reflect a strategic balancing act: defending governance while addressing activist pressure. The SRP buys the Board time to focus on value creation, but investors should monitor whether the company can deliver on its operational goals amid shareholder scrutiny.

Key data points reinforce this outlook:
- Icahn’s 34% economic stake dwarfs his direct ownership, signaling confidence in Bausch’s underlying value.
- The SRP’s 20% threshold creates a clear barrier to voting control, potentially deterring short-term activism.
- Paulson’s $50 million bond position, while small relative to Bausch’s $10.7 billion market cap, underscores the need for leadership accountability.

For investors, Bausch Health’s case study highlights the evolving tools of activism and defense. While the SRP may calm immediate concerns, the true test will be whether the company can leverage this stability to execute its strategy—and deliver returns that satisfy all stakeholders, including Icahn.