Perrigo hit with $1.8B back taxes bill
- Perrigo's stock slid 15% when markets opened Friday, as investors reacted to the consumer and specialty drugmaker disclosing Thursday a new $1.8 billion bill it faces from Irish tax authorities over how a 2013 deal was classified.
- The regulatory issue centers around Elan Pharma selling its multiple sclerosis drug Tysabri to Biogen in April 2013. Perrigo bought Elan later that year for about $8.6 billion. Irish tax authorities are claiming that transaction should have been treated as a chargeable gain with an effective tax rate of 33% instead of trading income, which has a 12.5% effective rate, according to a company filing with the Securities and Exchange Commission.
- Perrigo called the tax assessment meritless and legally incorrect, and intends to appeal. The company noted it would not have to pay until all applicable proceedings have completed, which Perrigo said could take several years.
Days before Christmas, Perrigo would have preferred coal to a $1.8 billion bill.
The company disclosed it was under audit by the Ireland Tax Authority in its most recent SEC quarterly filing. It also mentioned an ongoing audit by the U.S. Internal Revenue Service concerning the 2013-2015 fiscal years, which also covers the time of the Elan sale.
Additionally, Raymond James analyst Elliot Wilbur said in a Dec. 20 note to investors the $1.8 billion figure does not include interest or any potential penalties the company may wind up also forking over.
Wilbur noted too that Elan has long been perceived among investors as "crafty" with its financials. That may have resulted in the big bill now in Perrigo's lap. As of Sept. 29, Perrigo had $444 million in cash and cash equivalents.
On a larger scale, 2018 has been a year of uncertainty for Perrigo. Its market capitalization has been cut down more than half, from roughly $12.5 billion when the year started to $5.5 billion.
Uwe Rohrhoff took over as Perrigo's CEO in January. He lasted 10 months before being replaced in October by Murray Kessler, who became the company's third leader in as many years.
Kessler, a former executive in the tobacco industry, will try to drive the company to a consumer focus. In August, Perrigo announced it plans to spin off its prescription drug business from its consumer healthcare unit.
Doubts still surround a path to profitability. While its prescription drug business posted a modest operating income of $36 million last quarter, it consumer health division had an operating loss about $126 million.