As Its CEO Leaves to for Valeant, Perrigo Continues to Struggle -- 2nd Update
April 25 2016 - 2:07PM
Dow Jones News
By Anne Steele
Perrigo Co. shares tumbled Monday as the company slashed its
guidance for the year while announcing the departure of its Chief
Executive Joseph Papa, who is moving to lead Valeant
Pharmaceuticals International Inc.
The move by Mr. Papa comes just months after he successfully
beat back a $26 billion hostile takeover bid from Mylan NV by
convincing shareholders that Perrigo's growth prospects were
brighter as a stand-alone company.
Since then, though, Perrigo has reported disappointing quarterly
results and chipped away at its outlook, having yet to live up to
the overtures it made to shareholders about its outlook and
valuation while it fought against the deal.
The company at the time argued it should be valued at more than
20 times its forward earnings, in line with its performance over
the past several years, which would have valued the stock at about
$190 a share at the time. Mylan's cash-and-stock offer had valued
the company at nearly 19 times its 2016 earnings forecast.
But Perrigo's stock has fallen by roughly one-fourth since
shareholders rejected Mylan's offer in November, and shares have
lost about half of their value over the past year. Shares of the
company slid 15% to $102.90 in midday trading on Monday.
"In hindsight, Perrigo management set unrealistic and
aspirational earnings guidance in its effort to defend against
Mylan's hostile bid," said Wells Fargo analyst David Maris.
A Perrigo spokesperson didn't immediately respond to a request
for comment.
Mr. Papa was instrumental in encouraging shareholders to reject
the offer, which was the biggest hostile bid ever to be settled at
the ballot box.
The company, principally a maker of store-brand versions of cold
and allergy medicines, said Monday it now expects adjusted earnings
to be between $8.20 and $8.60 a share, down sharply from its
previous guidance for $9.50 to $9.80 a share. When it cited its
forward price-to-earnings multiples in November, it was forecasting
$9.45 a share of adjusted profit.
Perrigo cited a reduction in pricing expectations in its
prescription segment "due to industry and competitive pressures in
the sector." The company also pointed to weaker-than-expected
performance within its new branded consumer health-care segment for
the next three quarters and lower expectations for new product
launches.
Mr. Papa is well-known among investors, more so since the highly
public Mylan campaign, in which he met extensively with
shareholders to lobby for their support.
In 2013, he led the drugmaker, then based in Michigan, through a
merger with an Irish rival that moved its legal home overseas in a
deal known as an inversion, typically used cut a company's taxes.
Perrigo bought Dublin-based biotech firm Elan Corp. for $8.6
billion, then established a holding company under its name in
Ireland to take advantage of the comparatively low 12.5% corporate
tax rate.
But Perrigo trimmed its yearly earnings outlook in February
after swinging to a loss in the fourth quarter, dragged by legal
fees and a disappointing performance in its branded consumer
health-care segment. During the quarter, the company booked $71.3
million in fees stemming from its defense of the Mylan takeover
attempt -- an amount that surpassed the prior year's profit and
offset a 33% jump in sales.
Since the conclusion of the eight-month battle, Perrigo has made
a number of moves to expand its business, including the purchase of
U.S. rights to Crohn's disease treatment Entocort from AstraZeneca
PLC, and the acquisition of a generic portfolio of the Retin-A acne
treatment. Perrigo has long used acquisitions to power growth; last
summer, the company agreed to buy a portfolio of over-the-counter
brands from GlaxoSmithKline Consumer Healthcare in a move to beef
up international revenue.
On a call with analysts and investors after its latest quarterly
results were released in February, Mr. Papa said the results from
the branded consumer health-care business were "a personal
disappointment to me" and pointed to particular weakness in Spain
and Germany.
"I recognize my actions will speak louder than my words so I am
committing a significant allocation of my time over the [next] six
months to be in Europe," he said on the call.
On Monday, Perrigo said it may have to write down the value of
the business while reporting results for the quarter that ended
April 2. Perrigo acquired the consumer health-care business,
previously Omega Pharma NV, in March 2015. The company said it is
in the process of assessing whether an impairment exists and said
it couldn't estimate charges or whether and any such charges could
have a significant impact on the company's financial results.
--Denise Roland contributed to this article
Write to Anne Steele at anne.steele@wsj.com
(END) Dow Jones Newswires
April 25, 2016 13:52 ET (17:52 GMT)
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