VRX Bausch Health Cos

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 announced Mr. Papa's 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 when 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 investors. Mr. Papa said 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 lowered its outlook, saying it expects adjusted earnings for 2016 between $8.20 and $8.60 a share, down 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 is forecasting weakness in its consumer health-care business, previously known as Omega Pharma, over 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 down 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 get to know the new leader, 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 26, 2016 02:49 ET (06:49 GMT)

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