As quoted in a transcript of the company’s third quarter earnings call with analysts, CEO Joseph Papa said the company has initiated a process to sell the US VMS business. The company says the move is part of plant to save $35 million in annual costs, though Papa and CFO Judy Brown were not specific as to how these costs savings would be achieved. The key point, though, was that the US private label VMS business was not performing well enough on a return-on-investment-capital basis to help the company fend off a hostile takeover bid that was initiated by UK pharmaceutical company Mylan NV in September.
“In keeping with our continuous attempts to improve our efficiency we will be evaluating aspects of our business and defecting certain assets that did not meet our ROIC threshold. While our US VMS business delivers excellent products to our long-standing customers we think that it will thrive more fully under new ownership. While we have recently improved this business it's divestiture will enhance our revenue and operating margins earnings and ROIC,” Papa said.
The company also announced a plan to pare 800 jobs. Again, it was not entirely clear how many of these were outright staff reductions and how many positions would naturally be eliminated when and if the VMS business was sold. Worldwide Perrigo, which reincorporated itself in Ireland last year, has about 6,000 employees. The company, which manufactures a wide array of OTC and generic drugs in addition to dietary supplements, continues to have its operational headquarters in Allegan, MI.
Mylan, a generic drug maker with roots in Pittsburgh, PA that reincorporated itself last year in the UK, has been tendering unofficial takeover offers since April, offers which Perrigo has rejected. It launched its formal, hostile takeover bid with an offer directly to Perrigo shareholders in mid September, offering them $75 in cash and 2.3 Mylan shares for each Perrigo share.
In late September, Perrigo announced a deal with Illinois-based Ferrara Candy Company to bring out a line of gummy vitamins. This deal presumably was under development before the takeover bid process began. With last week’s announcement of Perrigo’s pending VMS divestiture, there was no immediate response from either company on what this means for the future of the gummy deal.
In another development in the divestiture saga, Papa and Brown reportedly arrived in Israel today, a market the company active in following a 2005 acquisition and where it has more than 1,000 employees, to meet with investors to tell their side of the story as to why Mylan’s bid should be rejected. Perrigo, which is listed on the New York Stock Exchange, is also listed on Israel’s exchange. Israeli institutional investors reportedly hold more than 10% of the company.
Net sales in Perrigo’s third quarter rose 41% to $1.3 billion, benefiting from higher sales in Consumer Healthcare and Rx Pharmaceuticals segments and a strong performance from the Branded Consumer Healthcare segment.