UPDATED: Ackman-led hedge fund Pershing Square scores seat on Zoetis board

Now that the market has had a few days to digest the news that activist hedge fund Pershing Square Capital has won a seat on Zoetis' ($ZTS) board of directors, one question is likely weighing on investors' minds leading into the company's earnings release this Wednesday: Now what?

Under pressure from Pershing Square's William Ackman, Zoetis said last Wednesday it has named Ackman's colleague, William Doyle, to its board of directors. Doyle will serve on the board's corporate governance committee. Furthermore, Zoetis and Pershing Square have agreed to elect "an additional independent director mutually acceptable" to both companies, Zoetis said in a press release.

The announcement comes nearly three months after Ackman snapped up $1.5 billion worth of Zoetis' shares, reportedly complaining that the company's costs were too high and suggesting it should be sold. Rumors emerged last week that Ackman--most famous recently for trying to push Allergan ($AGN) into a merger with Valeant ($VRX)--was lobbying for Pershing to gain seats on Zoetis' board.

Ackman could start pushing for a sale as early as mid-year if the company doesn't make any progress, anonymous sources tell the Financial Times. A couple of large players had expressed an interest in acquiring Zoetis before Pfizer ($PFE) divested it, including Bayer, the paper points out, but rules pertaining to spinouts restricted any such deal during its first two years as an independent company. As of June, the two-year period will be over.

With the addition of Doyle, Zoetis is expanding its board membership to 10. Doyle has spent more than 20 years in a variety of healthcare positions, serving as an executive at Johnson & Johnson ($JNJ), a consultant at McKinsey & Company, and co-founder and managing partner at WFD Ventures, which provides financing to pharma and healthcare technology companies.

"He brings significant expertise and relevant industry and operational experience to Zoetis and I am confident he will provide valuable insight and perspectives as we continue to enhance our position as the world leader in animal health," said Zoetis CEO Juan Ramón Alaix in the release.

A Zoetis spokesman told FierceAnimalHealth the company would not comment beyond the press release, citing the quiet period leading up to its earnings announcement.

Still, the announcement of Doyle's appointment is a sure sign Zoetis can only do so much to resist the whims of Pershing, which is now Zoetis' largest shareholder. Late last year, Zoetis adopted a one-year shareholder rights plan, or a poison pill, to stave off a hostile takeover attempt. Then it hiked its dividend 15% year-over-year to 8.3 cents per share. Now it has no choice but to engage in an ongoing dialog with Pershing's Doyle, who is likely to have some strong opinions about whether or not Zoetis has what it takes to thrive as an independent company.

"As the industry leader in the animal health market, Zoetis is an exceptional company with a diverse product portfolio and great long-term value creation potential," Doyle said in the release from Zoetis. "I look forward to working constructively with Juan Ramón, Zoetis management and the board to deliver value for all shareholders over the long-term."

- here's Zoetis' press release
- here's the FT story (sub. req.)
- read more at Reuters
- get Forbes' take here

Special Report: Top 10 animal health companies of 2013 - Zoetis

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