Starboard Value Takes 4.6% Stake in Perrigo -- Update

By David Benoit and Jonathan D. Rockoff 

Starboard Value LP has built a 4.6% stake in Perrigo Co., worth nearly $600 million, and is urging the drug company to refocus on its core business.

The activist shareholder sent Perrigo a letter Sunday criticizing the company for failing to live up to performance targets it set while successfully fending off a $26 billion takeover offer last year from Mylan NV. A copy of the letter was reviewed by The Wall Street Journal.

Starboard, fresh off victory at Yahoo Inc., argues Perrigo management has been distracted by the merger fight and attempts to diversify away from its over-the-counter drugs business, a powerhouse in private-label medicines including versions of headache remedy Tylenol, heartburn aid Pepcid and allergy pill Claritin. Starboard argues the company should command a far higher stock-market value but has lost investor confidence, according to the letter.

Perrigo should consider shedding noncore assets, including its prescription-pharmaceuticals unit and the lucrative income stream it gets from multiple-sclerosis treatment Tysabri, Starboard argues.

The hedge fund wants the company to hire advisers to explore that and other alternatives.

Perrigo said in a statement that it would review the letter and 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."

Last November, Perrigo managed to win the backing of its investors in a hotly contested shareholder vote over what in retrospect was a rich takeover offer from Mylan.

Perrigo's then-Chief Executive Joseph Papa argued the offer substantially undervalued the company and its future prospects, which he described as bright as the company took its over-the-counter medicines abroad.

Yet Perrigo stumbled and shares have lost more than half their value. Its market capitalization is now $12.7 billion.

The company has acknowledged difficulties integrating a European business it had bought and counted on for growth. It has lowered its financial outlook for this year, to $6.85 to $7.15 a share from $9.50 to $10.10 in January.

In August, Perrigo reported second-quarter results that missed Wall Street's expectations, which new CEO John Hendrickson blamed largely on "competition and price erosion" for its generic drugs.

In April, Mr. Papa left to take the helm of Valeant Pharmaceuticals International Inc.

Starboard often seeks board changes and recently helped get Yahoo sold.

Write to David Benoit at [e-mail] and Jonathan D. Rockoff at [e-mail]

(END) Dow Jones Newswires

September 11, 2016 22:56 ET (02:56 GMT)

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