Perrigo Targeted by Activist Starboard With New 4.6% Stake

Updated on
  • Activist critical of missteps since drugmaker rebuffed Mylan
  • Shares gain early Monday, are down 40% since Mylan bid failed

Perrigo Co. is being targeted by activist Starboard Value LP, which disclosed a new 4.6 percent stake in the drugmaker and criticized what it called “operational and financial missteps’’ since the company rebuffed Mylan NV’s 2015 takeover offer.

Starboard is urging Perrigo to explore a sale of its prescription pharmaceuticals business and its royalty interest in the multiple sclerosis therapy Tysabri, according to a seven-page letter to Perrigo’s board obtained by Bloomberg. The company should focus on its consumer health care over-the-counter business and branded products, Starboard argued. The fund’s stake is worth about $585 million, as of Friday’s closing price.

In the letter dated Sept. 12, Starboard said it’s seeking “to share our preliminary thoughts on issues facing the company and opportunities for improvement, and to begin what will hopefully be a constructive engagement with the goal of driving value creation for the benefit of all shareholders.”

“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,” Starboard Chief Executive Officer Jeff Smith wrote in the letter. “Unfortunately, since that time, results have gone decidedly in the wrong direction, and management’s promises have been woefully unfulfilled.”

Perrigo said in a statement Monday that it “looks forward to a constructive and productive dialogue with Starboard -- as we do with all of our shareholders -- while we execute on a number of strategic and operational initiatives.”

Declining Stock

Perrigo shares rose 3.6 percent to $91.87 at 10:56 a.m. in New York. The stock is down 40 percent since Mylan’s offer failed in November, as of Friday’s close.

Perrigo, which produces generic and over-the-counter drugs, fought off a takeover bid from Mylan last year, arguing that its prospects were better alone than as part of another pharmaceutical company. Since then, it has underperformed its peers, Starboard wrote in the letter.

Joseph Papa left his post as Perrigo’s chief executive officer to take the top spot at Valeant Pharmaceuticals International Inc. in May, and his successor cut the company’s forecasts, calling them unrealistic. 

Starboard, which said it had been hopeful for “fresh ideas” from new CEO John Hendrickson, noted he has worked at Perrigo for about 27 years and “to date, no new plans have been announced for a meaningful change in strategic direction or operational excellence.” Hendrickson is scheduled to present at Morgan Stanley’s health investors conference in New York on Monday at 11:05 a.m.

The Wall Street Journal reported Starboard’s stake earlier, citing a letter from the activist investor.

Yahoo Activism

“The same board that endorsed the ‘just say no’ defense against Mylan and conferred wildly optimistic promises has overseen the recent tremendous value destruction,” it said in the letter.

Starboard has also been fighting for a special shareholder meeting to replace the board of Depomed Inc., a developer of oral drug-delivery technologies. New York-based Starboard typically targets small- and mid-cap public companies it considers undervalued, pushing executives and directors for changes such as unit spinoffs and asset sales and often taking board seats.

The activist investor’s most high-profile target, Yahoo! Inc., recently agreed to sell its core business to Verizon Communications Inc., almost three years after the hedge fund went public with its campaign. 

— With assistance by Cynthia Koons, and Hui Li

(Updates with opening share price in fifth paragraph.)
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