The plunge in the share price of Perrigo Company (NYSE:PRGO; TASE:PRGO, and disappointment over the company's financial results have led activist Starboard Value LP to invest in the drugmaker. Yesterday, "The Wall Street Journal" reported that the fund has acquired a 4.6% stake in Perrigo, shares worth almost $600 million, and urges the company to focus on its core business. This stake was acquired in the past few weeks: at the end of the second quarter, Starboard Value did not hold any Perrigo shares. Following this report, Perrigo's TASE share price rose 3%.
Perrigo is a generic drug company, operating mainly in the field of over-the-counter drugs (drugs not requiring prescription), but also in related fields. Ten months ago, the company's shareholders rejected a takeover bid from Mylan N.V. (Nasdaq: MYL; TASE: MYL); since then, the company's share price has plunged 43%. The bid was rejected after the investors had been convinced that Perrigo's management, which managed to create value for them in the past years, would be able to continue doing so independently in the future. However, a short time later, Perrigo started disappointing by cutting its annual forecasts three times, issuing a profit warning, reorganizing a newly acquired company, a disappointment that was also due to the sudden resignation of the previous CEO Joseph Papa. Perrigo's current CEO is John Hendrickson, the company's former president; the company is traded at a market cap of $12.7 billion on NYSE and TASE.
"Bloomberg" reports that Starboard Value is urging Perrigo to explore the possibility of selling its prescription drug operations and its royalty interest in the Tysabri multiple sclerosis therapy. Estimates that Perrigo will sell its Tysabri rights have already been published in the past, and Perrigo does not rule out the possibility of selling, as it has done with non-core vitamin operations.
Starboard Value said that Perrigo should focus on the field of consumer healthcare and over-the-counter drugs. The report also stated the fund has turned to Perrigo "to begin what will hopefully be a constructive engagement with the goal of driving value creation for the benefit of all shareholders." "Bloomberg" cites a letter from Starboard CEO Jeff Smith saying, “In order to convince Perrigo shareholders to reject Mylan’s offer, management and the board made aggressive promises of drastic improvements in both financial and stock price performance. Unfortunately, since that time, results have gone decidedly in the wrong direction, and management’s promises have been woefully unfulfilled…The same board that endorsed the ‘just say no’ defense against Mylan and conferred wildly optimistic promises has overseen the recent tremendous value destruction."
New York-based Starboard Value was founded in 2002 and deals with investments in US public companies it considers undervalued. It is known as an activist fund, and has recently led the fight to shake up Yahoo's management, after pushing for similar measures in two Israeli firms in the past. In Zoran, which was traded on NASDAQ before it was sold, Starboard managed to replace several directors a few years ago; it also came into conflict with DSPG's board of directors in 2011 after it pushed for the streamlining and sale of the company, managed to replace directors and finally reached a compromise according to which directors operating on behalf of the fund were appointed.
Published by Globes [online], Israel business news - www.globes-online.com - on September 12, 2016
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