Perrigo delays spinoff of prescription unit

Pharmaceutical company Perrigo (PRGO) in 2018 announced its plans to spin off its prescription business.

In 2013, Perrigo acquired Elan Corporation for $8.6 billion, after the company completed its spinoff of Prothena (PRTA) in late 2021. Five years later, in late 2018, Perrigo found out that the Irish government had outstanding underpaid taxes with Elan worth $1.8 billion, in 2013. The government said Elan had misclassified income from the sale of its Tysabri to Biogen (BIIB). Although the outstanding tax bill didn’t include penalties or interests, it would still affect the company’s finances.

The tax bill came at a time when the company was already struggling to keep its business afloat. In August 2018, Perrigo said it had ongoing plans to sell off its struggling prescription pharmaceutical business which would allow the company focus on its consumer business. At the time, Perrigo hoped to complete the separation by at second half of 2019. Based on the numbers from its third quarter, there was little hope that the spinoff will fetch a reasonable amount in sale.

In August 2019, Perrigo decided to put on hold its spinoff plan after making strong sales in the quarter. The company’s original intention of a spinoff or merger of its prescription business which was set to go into effect by late 2019 or early 2020 is now indefinite, the company said.

In its 2019 second-quarter earnings call with investors, president and CEO Murray Kessler said the company was committed to a spinoff but wasn’t under much pressure anymore, as the prescription business was starting to pick up again.

“This is a business that’s a good business. It’s differentiated, that doesn’t have the same exposure as others and this is a challenging time to be separating,” said Kessler. “So I-we need to do it because it’s the right thing to do. And I believe we have a little bit of time as the business has stabilized.”

In the same period the previous year, Perrigo’s board agreed to the spinoff of its prescription business after investors pushed for it, asking the company to focus more on its OTC business. Activist Starboard Value was one of the loudest voices calling for “strategic alternatives” to the struggling company.

“We think this is progress and better than where (Perrigo) was in recent quarter, but still not robust growth or improvements deserving a consumer multiple,” said Wells Fargo analyst David Maris in a note to investors. We do not think investors were expecting an immediate turnaround, so incremental progress is still a positive development in our view.”

About Perrigo

Perrigo Company plc is an American-owned Irish-registered manufacturer of over-the-counter pharmaceuticals. The company legally has its headquarters in Ireland for tax purposes which accounts for only 0.60% of net sales. About 70% of its net sales are generated from the U.S. healthcare system. The company was founded by Luther and Charles Perrigo in Allegan, Michigan, in 1887. It had its initial public offering on NASDAQ in 1991.