Barclays Sees 44-48% Upside In Perrigo Shares; Co. Remains Vulnerable To Activist Investors

Noting that activist investor Starboard Value disclosed a 4.6 percent stake in the company last week, Barclay's specialty pharma analyst Douglas Tsao said he sees significant value in the company's core CHC and BHC businesses. Tsao also noted that Starboard is pressuring the company to divest its specialty sciences, consisting of the Tysabri royalty, and Rx generics segments in order to sharpen focus on its U.S. store-brand CHC and European BHC businesses.

Related Link: Deutsche Bank Echoes Starboard's Sentiment: Perrigo Is Undervalued

Barclays noted with the guidance revision due to the headwinds facing the Rx generics segment, talks of divesting the segment will gain ground. Although Barclays gives good marks for Perrigo's management team for its accessibility to investors, it believes some activist investor could pull it up based on some corporate governance metrics. The most likely issue, according to the firm, could be the average tenure of a directors, which is very high compared to peers like Teva Pharmaceutical Industries Ltd (ADR) TEVA, Allergan plc Ordinary Shares AGN and Mylan NV MYL.

Despite Perrigo's contention that there is R&D synergy between the CHC and Rx businesses, Barclays thinks the synergy is limited due to the rarity of Rx-to-OTC switches. Barclays is of the view that Perrigo pure-play valuation should offset any dilution.

At time of writing, Perrigo shares were up 1.33 percent at $94.54.

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