Perrigo Company PLC
On shoulders of a long list of disappointed value investors!
Perrigo Company plc, commonly known as Perrigo, is an American-Irish manufacturer renowned for its private label over-the-counter pharmaceuticals. The company's roots trace back to 1887 when it was founded by Luther Perrigo in Allegan, Michigan. In 1887, Luther Perrigo, who owned a general store and an apple-drying business, conceived the idea of packaging and distributing patented medicines and household items to country stores. To boost customer loyalty, Luther introduced the "private label" concept, offering to print the store's name on labels of products like Epsom salts, sweet oil, bay rum, and many other wet and dry goods at no extra cost. Perrigo established its first manufacturing facility in Allegan, Michigan, in 1921 and secured its first major private-label customer in the mid-1930s. This milestone marked the company's transition from a re-packager of home remedies to a manufacturer of affordable healthcare products.
By the 1980s, the company had established itself as a key player in the private label over-the-counter (OTC) pharmaceutical market. In 1988, Perrigo went public, listing its shares on the NASDAQ stock exchange. The 1990s saw Perrigo extend its reach internationally, setting up operations in various countries and acquiring several companies to broaden its product portfolio and market presence.
Perrigo's growth was further propelled by the advent of prescription-to-over-the-counter (Rx-to-OTC) switches, which allowed prescription products to become available over the counter. This shift significantly expanded the market for OTC products, providing Perrigo with new opportunities for growth and innovation in the healthcare sector.
Perrigo's long-term strategy was to become a leading global provider of self-care products. The company sought to leverage its strengths in the consumer health sector rather than the more competitive and lower-margin generic drug market. The company made a significant move in 2013 by purchasing the Elan Corporation, which not only relocated its corporate domicile to Ireland but also positioned it as a global pharmaceutical industry player. The redomiciling of Perrigo to Ireland allowed the company to benefit from Ireland’s lower corporate tax rates compared to the U.S Another notable acquisition was in 2015 when Perrigo bought Omega Pharma, a leading European OTC healthcare company, further solidifying its market position.
In 2016, Perrigo acquired PBM Products for $800 million, an infant formula business, which manufactured formula for major retailers like Walmart and Kroger, as well as other private label infant formulas.
In April 2015, Mylan, known for its generics and specialty drugs, made an initial offer to acquire Perrigo at $26 billion or $205 per share. Management at Perrigo rejected this offer and the stock has done nothing but go down since! A bird in hand….
In 2016, Starboard Value became one of Perrigo's largest shareholders, advocating for changes to improve the company’s performance and value. Starboard wanted Perrigo to focus on its core consumer self-care business including on operational improvements and divest non-core assets, such as its generic drug business. It would eventually do that, but it would take much longer than anyone expected.
In 2020, Perrigo reached a settlement with the Irish tax authorities. As part of the resolution, Perrigo agreed to a payment of $1.9 billion to settle the tax dispute which was a substantial hit to the financials. In 2021, Perrigo issued a voluntary recall of certain lots of baby formula due to potential contamination concerns and then in 2023, it faced further issues in its newly acquired infant formula facility from Nestle.
These challenges have contributed to the creation of numerous value investors who developed promising investment theses, only to see their efforts consistently thwarted by ongoing issues. In many instances, even when the investment setup starts to improve, former investors may be reluctant to re-evaluate the situation due to their prior negative experiences with the stock. The repeated setbacks can lead to a reluctance to reconsider the investment, despite evolving circumstances.
This is where the mental flexibility of renowned investors like Warren Buffett becomes particularly notable. Despite having a notably poor experience with investments in the airline industry, Buffett made another investment in the sector once he observed improvements in the industry’s structure. His ability to reassess and invest based on evolving conditions, rather than being anchored by past disappointments, highlights a crucial aspect of successful investing: the willingness to update one’s views and strategies in response to changing market dynamics.
Finally, in February 2021, Perrigo announced the sale of its generic drug business, which was part of its Rx segment, to a private equity firm, TPG Capital for $1.55 billion.
Perrigo is now a pure OTC business focused on its core consumer self-care business, which includes over-the-counter (OTC) health and wellness products. By divesting the generic drug business, Perrigo aimed to streamline its operations and concentrate resources on areas with stronger growth potential and higher margins.
What can be…..unburdened by what has been: