Perrigo Up As Starboard Reveals Stake, Changes Proposed

Perrigo Company plc’s (NYSE:PRGO) shares gained 7.4% after the New York-based activist investor, Starboard Value LP, revealed in a letter its 4.6% stake in the company, making it one of Perrigo’s largest shareholders.

In a letter dated Sep 12, 2016, Starboard Managing Member, Jeffrey C. Smith, urged the Chief Executive Officer of Perrigo, John Hendrickson, and its board of directors to consider improving the company’s poor operating and financial performance.

Smith mentioned that Perrigo undertook several operational and financial “missteps” last year, which has led to a decline in the company’s valuation. Smith pointed out that Perrigo went to great extent, using unrealistic forecasts to reject an unsolicited takeover offer from Mylan N.V. (NASDAQ:MYL) last year.

Also, the management and board spent more than $100 million in advisor fees in order to defend their move. Smith added that, had the offer been accepted, it would have sent Perrigo’ shares above 88% than its current stock price.

Starboard said that not only has Perrigo failed to deliver what it promised after rejecting Mylan’s offer, but also the Mar 2015 Omega Pharma acquisition (which created Branded Consumer Healthcare/BCH business) has been grossly mismanaged. Further, the company has committed numerous execution errors and considerably lowered its financial guidance on the past two earnings calls.

However, Starboard believes Perrigo holds a strong franchise with valuable assets and significant opportunities to unlock shareholders value.

Starboard believes that the combination of Perrigo’s core Consumer Healthcare business and the BCH business offer the company with a unique global over-the-counter (OTC) market position. However, Perrigo owns quite a few non-core assets. Starboard believes that there exist limited synergies between Prescription Pharmaceuticals (Rx Pharmaceuticals) business and the core OTC businesses.

Moreover, Perrigo, which receives royalties on global sales of Biogen Inc.’s (NASDAQ:BIIB) multiple sclerosis drug Tysabri, should consider divestment or explore other broader strategic alternatives including its Rx Pharmaceuticals business.

PERRIGO CO PLC Price

We remind investors that while announcing second-quarter 2016 results, Perrigo had lowered its 2016 earnings outlook. The company expects earnings in the range of $6.85 to $7.15 per share, previously guided within that of $8.20 to $8.60. The cut in the earnings guidance was due to continued price erosion and changing market dynamics in the Rx business, in addition to lower expectations from BCH business.

Perrigo in its press release said that it will evaluate the letter and engage in talk with Starboard.

Perrigo is a Zacks Rank #5 (Strong Sell) stock. Geron Corporation (NASDAQ:GERN) is a better-ranked stock in the health care sector, sporting a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

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