Starboard Value LP said Depomed Inc. should consider selling itself in a letter to the pharmaceutical company's board a day after disclosing a stake in the maker of pain drugs.

The activist investor owns about 6 million shares, or about 9.8% of Depomed's stock outstanding, when including certain financial agreements.

"We acquired our position in Depomed because we believe that the company is substantially undervalued and opportunities exist to create significant value for shareholders," wrote Jeffrey Smith, Starboard's chief executive.

Opportunities include improved capital deployment, rationalized research and development, and a potential sale of the company, he said.

Depomed responded Friday by saying it "welcomes open communications with its shareholders and values constructive input." According to the company, Starboard didn't communicate with it before revealing its stake Thursday and "has not attempted to hold any discussions" with Depomed.

Depomed said its board recommends shareholders take no action at this time.

The New York hedge fund said it would nominate a slate of candidates to the company's board. In the letter, Starboard accused the company of suppressing shareholder rights, poor corporate governance and mishandling the takeover offer from Horizon Pharma PLC. The firm also called Depomed's continuing lawsuit against Horizon ill-advised.

"These concerns lead us to believe that management and the board may be more interested in entrenching themselves than in delivering maximum value for all shareholders," Mr. Smith said in the letter, which noted that Depomed's stock had fallen 56%, through Thursday, from its high in July.

Friday, shares of Depomed rose 19% to $17.84. Depomed specializes in products that treat pain and central nervous system disorders.

Depomed is the latest company to come under Starboard's assault. The hedge fund is embroiled in a proxy fight with Yahoo Inc., has pushed Macy's Inc. to shed the retailer's real estate holdings and has taken a stake in Marvell Technology Group Ltd. The firm also overthrew the board at Darden Restaurants Inc.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

April 08, 2016 10:35 ET (14:35 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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