By Anne Steele
Perrigo Co. investors swallowed a bitter pill Monday as chief
executive Joseph Papa was tapped to lead Valeant Pharmaceuticals
International Inc., leaving behind a struggling business months
after he rallied the stockholders to fend off what now looks a
favorable takeover offer.
Shares of the company tumbled 18% in Monday trading to $99.40 as
the maker of store-brand cold and allergy medicines slashed its
guidance and said Mr. Papa, who had led the company for a decade,
would exit.
The move by Mr. Papa comes after he beat back a $26 billion
hostile takeover bid from Mylan NV in November by convincing
shareholders that Perrigo's growth prospects were brighter as a
stand-alone company.
After Monday's close, Perrigo's market value stands at roughly
$14.2 billion. Shares have lost one-third of their value since
stockholders voted to reject Mylan's bid, as the company has posted
disappointing quarterly results and chipped away at its outlook in
recent months.
Perrigo has failed to live up to the overtures it made to
shareholders about its outlook and valuation as it fought against
the deal. Less than six months ago, Perrigo argued it should be
valued at more than 20 times its forecast earnings, in line with
its performance over the past several years, which would have
valued the stock at about $190 a share.
"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 spokeswoman said the board "still firmly believes in
Perrigo's business model and in its future."
The company pointed to new CEO John Hendrickson's 27 years of
experience, citing his "deep industry expertise and knowledge."
Neither Perrigo nor Valeant made Mr. Papa available for
comment.
Mr. Maris said Mr. Papa's departure would come as a blow to
investors who were betting on his plans to improve the
business.
Perrigo's big push into the European market through its $4.5
billion acquisition of Belgium-based Omega Pharma NV, which closed
a year ago, has so far disappointed. Mr. Papa had told investors
that he was working on improving sales growth there, telling
analysts on an earnings call in February that "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."
Mr. Maris said Mr. Papa's departure is "like if you had decided
to go on a road trip across the country and they ditched you at a
rest area halfway through. Although the recent history isn't great,
[investors] still believed he had a handle on the business."
Mr. Papa was also instrumental in encouraging shareholders to
reject Mylan's offer, which was the biggest hostile bid ever to be
settled at the ballot box. A month before the vote, Perrigo said it
was "taking actions to deliver shareholder value far superior to
Mylan offer," including buying back stock.
"With these actions, we are making a great company -- with an
outstanding track record of value creation and compelling prospects
for continued growth -- even better," Mr. Papa said at the time.
During his push against the takeover, he met extensively with
shareholders to lobby for their support.
On Monday, the company slashed its outlook, saying it expects
adjusted earnings for 2016 between $8.20 and $8.60 a share, down
sharply from its prior guidance for $9.50 to $9.80 a share.
Perrigo cited competitive pressures in its prescription segment
for the cut. The company also pointed to weakness in its consumer
health-care business, previously Omega Pharma, for the next three
quarters, as well as lower expectations for new product
launches.
Mr. Papa departs for Valeant after leading Perrigo for a decade.
In 2013, he steered 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.
On Monday, Perrigo also said it may soon have to write down the
value of the Omega business, which could further cut into its
bottom line.
Perrigo on Monday said Mr. Hendrickson, who has been president
since October, would take the helm.
Jason Gerberry, analyst at Leerink, said Mr. Papa's departure
could disrupt any improvement plans for the Omega business but
added that until investors got to know the new boss, who has until
now stayed behind-the-scenes, it would be too soon to judge.
Perrigo is facing a double challenge, Mr. Gerberry said. First,
it is facing increasing competition in what was once a niche area:
specialty generic drugs such as injectable medicines and skin
creams. Second, consolidation of its main customer base --
distributors and chain drugstore chains -- has weakened Perrigo's
hand in price negotiations and forced deeper discounts.
--Denise Roland contributed to this article
Write to Anne Steele at anne.steele@wsj.com
(END) Dow Jones Newswires
April 25, 2016 17:08 ET (21:08 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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