Perrigo plans 800 layoffs and $2B share buyback
Perrigo announced this morning that it will lay off about 800 employees globally as part of a restructuring plan, as well as a $2-billion share repurchase plan.
Dublin-based Perrigo, which operates its North American base in Allegan, said the restructuring and share buyback are intended to “drive substantial profit growth in 2016 and beyond” and “deliver shareholder value far superior” to the hostile takeover bid by Mylan.
Perrigo detailed today the various "actions" that comprise its restructuring and repurchase plan.
Perrigo employs about 12,000 people globally, and its employee reduction plan accounts for 6 percent of the company’s global head count.
John Hendrickson, who was promoted to president of global operations and supply chain today, said more than half of the positions that will be eliminated will take place in South Carolina through the intended sale of Perrigo’s U.S. Vitamins, Minerals and Supplements business.
“Without business that we are looking at divesting, there are about 250 jobs globally that will be redundant,” Hendrickson said. “Some of them will be from Allegan.”
Hendrickson said he doesn’t know at this time what the job loss will be in West Michigan. He said he will be looking for redundancies in making decisions about who and where to make cuts.
“It will be from the top all the way down, where we will look for redundancies,” he said.
Hendrickson expects the total jobs in Allegan to remain above 4,000.
“We are going to continue to produce a lot of products at our Allegan and Holland sites,” he said. “We have been expanding jobs in the area and will still be operating on high efficiencies and investing more in those plants.”
Hendrickson said employees who are being laid off will be notified in the next 30 to 60 days, and they will receive severance packages.
Share repurchase plan
The share repurchase plan includes $500 million of repurchases that will be completed by the end of 2015 and an additional $1.5 billion in repurchases that the company expects to complete over the subsequent 24-36 months and are expected to be funded through “available liquidity.”
Consolidation in Ireland
Perrigo said it is taking immediate steps to consolidate its operations, supply chain and procurement management activities into one “global center of excellence” in Ireland to “maximize value” through the elimination of redundancies and enhancement of purchasing power.
Perrigo’s Global R&D leadership will join Global Portfolio Management in Ireland to drive a company-wide product selection and development process.
Perrigo expects annualized operational and tax benefits of $105 million from these initiatives.
Perrigo said it is “accelerating the realization of the benefits from its shared service model and improving operational efficiency by streamlining its organizational structure and eliminating redundant administrative functions."
The company said the changes will strengthen its focus on “organic growth strategies,” while ensuring "efficient global capabilities" in quality, research and development, information technology and services, human resources and finance.
Perrigo said it will “not compromise its focus on innovation” and take the actions in a manner that “preserves its growth strategies and ensures that it is well supported by a quality team.”
These actions are expected to deliver $35 million in annualized operating benefits.
Perrigo is also taking actions to refine its portfolio, including commencing the sale of the U.S. Vitamins, Minerals and Supplements business.
These actions are intended to improve the company's operating margins and return on invested capital and expected to deliver $35 million in annualized operating benefits.
Including the expected benefit of the $500 million in initial share repurchases and the $175 million annualized run rate from the restructuring actions, Perrigo expects a pro forma run rate earning per share of $9.836 in 2016.
Perrigo expects to deliver 22 percent adjusted EPS growth in 2016. This represents a 22-percent increase over the calendar year 2015 EPS guidance mid point.
Perrigo CEO and Chairman Joseph Papa said the restructuring actions are “the next step in our strategy to leverage the powerful global platform we have built.”
Specifically, he pointed to the acquisition of Elan in 2013 and the purchase of Omega Pharma earlier this year as evidence of the company’s prosperous future.
The acquisition of Elan "provided an international gateway for our durable base business model," and the purchase of Omega Pharma "provided us a pan-European branded consumer health care business that is delivering greater benefits than we originally expected,” Papa said.
Papa said the actions announced today “ensure that we fully capture the benefits of our global platform to drive continued strong profit growth and build substantial shareholder value."
"These actions will amplify the earnings power of our business, with each dollar of revenue driving greater profit accretion and more value for shareholders,” he said.
Hostile takeover bid
In September, Mylan offered Perrigo shareholders $75 in cash and 2.3 Mylan ordinary shares for each Perrigo ordinary share, giving Perrigo shareholders a 40 percent ownership in the combined company.
Papa addressed Mylan’s offer again today in relation to the announcement.
“The actions we are announcing today to drive substantial profit growth make the gross inadequacy of Mylan's offer clearer than ever,” Papa said.
“We strongly believe that Mylan's claims about synergies, benefits of its expected vertical integration and its ability to manage our business are simply wrong, particularly given the significant differences in our businesses and the markets in which we operate.”
Once again, Papa encouraged shareholders to ignore the Mylan offer.
“Perrigo is positioned to create substantially more value than the Mylan offer, and on behalf of the board, I urge all shareholders not to tender," he said.
Mylan’s offer to shareholders expires on Nov. 13.
Hendrickson noted that Perrigo views the offer as not only bad for shareholders but also as “bad for West Michigan.”