- Specialty drugmaker Perrigo Co. is parting ways with almost half of its board of directors to ease pressures from activist investor Starboard Value LP.
- Starboard, which owns 6.7% of Perrigo's stock, has been critical of Perrigo's leadership for lowering guidance, mishandling a possible takeover from Mylan, and not adequately increasing shareholder value.
- To calm the waters, the Irish pharma is giving Starboard's CEO Jeffrey Smith a spot on its board, and allowing the activist investor to recommend two more directors to join him.
Activist investors are often one of two things for a business: a thorn in its side or a wake-up call. In either case, those investors can make big waves, from building confidence in company leadership — as seen with Carl Ichan and Allergan — to tearing it down.
Starboard hasn't been happy with Perrigo management for a while. Back in September, the hedge fund sponsor sent a letter to Perrigo CEO John Hendrickson outlining its disappointment with recent decisions, namely the "mismanaged" integration of Omega Pharma NV, which the company acquired in late 2014, and the shut down of Mylan's takeover attempt in April 2015.
At the time, Mylan offered $205 per Perrigo share, a premium of more than 25%. By comparison, Perrigo stock traded at $78.86 per share in Tuesday morning trading.
"We believe the misguided confidence of management and the Board followed by deteriorating operating performance, which has been well below promised levels, has hurt the credibility of management and the Board, and, we believe, has resulted in a drastic rerating of Perrigo’s once premium multiple," Starboard said in the September letter.
Smith isn't the only new recruit to Perrigo's board.
Bradley Alford, an operating partner at Advent International Corp. and former CEO of Nestle Brands Company, and Jeffrey Kindler, the CEO of Centrexion Therapeutics, are also joining as part of the deal with Starboard.
Four members of what was an 11-member Perrigo board have already stepped down: Gary Kunkle, Michael Jandernoa, Herman Morris and Shlomo Yanai. A fifth, Ellen Hoffing, will step down once Starboard has made its additional recommendations.
As the changes stand now, the board currently has 10 members and, when all is said and done, will once again have 11.
Per the deal, Starboard has agreed to enter a customary standstill period during which it cannot do certain things, including solicit proxies or seek additional board representation. That period lasts until the earlier of either "15 business days prior to the shareholder nomination deadline for Perrigo's 2018 annual meeting of shareholders," or 100 days prior to the anniversary of its 2017 annual general meeting of shareholders, according to an 8-K filing with the Securities and Exchange Commission.
Perrigo declined to comment further, while Starboard Value did not immediately return request for comment.