Perrigo Considers Divesting Supplement Business, Remains Mylan-Averse
This article was originally published in The Tan Sheet
Executive Summary
The OTC private label leader focuses on increasing sales of its gummy vitamins to drive its supplement business growth. CEO Joseph Papa says retailer interest in the firm’s “differentiated” vitamins is keeping it in the market.
Perrigo Co. PLC has more than acquisitions on its plate: it also is considering divesting its vitamins and dietary supplements business.
The OTC private label leader, which is not putting a dent in the market shares of major firms operating only in the nutritional products space, is focused on increasing sales of its gummy vitamins to drive growth of its vitamin/mineral/supplement business.
At an investors’ conference in New York on June 2, President and CEO Joseph Papa said that with less competition for market share in gummy and other “differentiated” nutritional offerings, Perrigo expects to “drive the efficiency of our vitamin business.”
“If we can’t, we’ll probably have to make a different decision,” the CEO said.
Perrigo, more frequently a buyer in the consumer health care product space, also announced the acquisition of 11 international brands (see story this issue, (Also see "Perrigo Adds Planks To Brand Platform With GSK, Novartis International OTCs" - Pink Sheet, 3 Jun, 2015.)).
The firm, which also markets specialty Rx topicals and pet care products, in January announced an agreement with Ferrara Candy Co. Inc. to manufacture private label gummy vitamins and supplements Perrigo will provide to U.S. retailers (Also see "Perrigo Fills “Moat” To Protect Growth With Gummy Vitamins, European Flavor" - Pink Sheet, 13 Jan, 2015.).
Perrigo’s nutritionals business also includes infant formula products, which are generating much stronger sales than its vitamins and supplements,
During a question-and-answer session at the Jefferies 2015 Healthcare Conference, Papa said when Perrigo executives evaluate the firm’s business segments, they compare results to benchmarks including return on investment capital and meeting the needs of retailers such as Wal-Mart, CVS and other major mass-merchandise and drug store chains.
He said the ROIC from the vitamin and supplement business is not satisfactory, but retailer interest is strong. “For that reason, we’ve stayed in them at this time,” the CEO said.
Perrigo will align its supplement products more closely with its OTC business to make the products “more important to our individual retailers.”
In addition to its own market moves, Perrigo is the target of unsolicited takeover bids by Mylan NV. Asked about Mylan, Papa repeated what he’s said since Perrigo’s board rejected the bids made in April (Also see "Mylan’s ‘Investor Logic’ For Acquisition Could Support Perrigo’s Rejection" - Pink Sheet, 18 May, 2015.).
“We believe the long-term value-creation of Perrigo is substantially above” Mylan’s offer, he said.
Asked about the “industrial logic” of merging with Mylan, though, Papa said only that Perrigo is focused on growing as a standalone business.
And about the potential that Mylan is bidding for Perrigo to dash a takeover bid by Teva Pharmaceutical Industries Ltd., he said, “Only Mylan can answer that question.”
In same-day research notes, market analysts noted Perrigo’s attraction as an acquisition target.
“Its tax structure and durable cash flow model could make Perrigo a potential target,” said Deutsche Bank Market Research analysts.
UBS Global Research analysts pointed out Perrigo continues making deals despite Mylan making three bids and informing Irish regulators that, with approval from its own shareholders, it will make its bid directly to Perrigo shareholders.
“It's good to see [Perrigo] remaining focused on its [business] and executing on niche deals while the Teva-Mylan-Perrigo saga is still playing out. Perrigo remains one of our favorite companies because of its durable assets and consistent mid-single digits sales growth,” UBS analysts said.
Market analysts also note that investor support for Mylan acquiring Perrigo is waning and that the firm’s executives say they have acquisition targets other than Perrigo.