David Einhorn Comments on Perrigo

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May 17, 2017

Perrigo (NYSE:PRGO) is the largest manufacturer of private label over -the-counter (OTC) pharmaceutical products for U.S. retailers and pharmacy chains. Over the past decade the company acquired other business lines, including a portfolio of European OTC brands (Omega), a generics pharmaceutical business, and a royalty stream on a large multiple sclerosis drug that has since been divested. In November 2015, shareholders rejected a hostile takeover offer from Mylan worth $175 per share after the then-CEO laid out ambitious standalone earnings targets. Unfortunately for shareholders, these targets proved far too optimistic and the CEO ultimately departed. After several large guidance cuts, we believe the new management team has now set achievable earnings forecasts. Omega’s business suffered from large restructuring expenses last year that should not recur and has additional margin upside as it streamlines its product portfolio. The company also has a dominant market position in its core U.S. OTC business and should continue to grow profits in this segment. We believe the U.S. OTC business and Omega have profit and growth characteristics similar to consumer products businesses, which trade at healthy multiples due to the stability of their cash flows. We purchased PRGO at an average price of $68.81 per share or 11x our estimate of 2019 earnings. PRGO shares ended the quarter at $66.39.

  • From Einhorn's first-quarter 2017 shareholder commentary.