Perrigo (PRGO) Stock Plunging on Failed Mylan Deal

Perrigo (PRGO) stock is down in early morning trading on Friday, after the company's shareholders failed to tender enough stock into Mylan's (MYL) hostile bid for it to be successful.
By Rachel Graf ,

NEW YORK (TheStreet) -- Perrigo (PRGO) - Get Report stock is lower by 7.38% to $145 on heavy trading in early morning trading on Friday, after Mylan's (MYL) hostile $26 billion takeover offer expired this morning amid insufficient support from Perrigo shareholders.

Only 40% of Perrigo stock was tendered into the offer before it expired at 8 a.m. ET, short of the 50% required for the deal to have been successful, the Wall Street Journal reports.

Perrigo had encouraged its shareholders to reject the offer, while Mylan shareholders voted in favor of the acquisition last month. 

In October, Perrigo announced cost cuts and a share buyback to appease its investors, the Journal adds. As the deal's close approached, the company stood behind its decision to leave the company's future up to its investors. 

"We have said all along that this offer from Mylan was a bad deal for our shareholders, as it significantly undervalued our durable business model and industry-leading future growth prospects," CEO Joseph Papa said in a statement. "Strong organic growth, a disciplined approach to M&A, and transparent, accessible corporate governance policies are the foundation of our successful business strategy."

Perrigo shareholders will begin to aggressively buy back stock this morning, and will buy back as much as 500 million shares by the end of the year, CNBC reports.

About 4.45 million shares of Perrigo have been traded so far today, well above the company's average trading volume of about 1.7 million shares a day.

Separately, TheStreet Ratings team rates PERRIGO CO PLC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate PERRIGO CO PLC (PRGO) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 7.1%. Since the same quarter one year prior, revenues rose by 41.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The current debt-to-equity ratio, 0.50, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.06, which illustrates the ability to avoid short-term cash problems.
  • PERRIGO CO PLC has improved earnings per share by 6.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, PERRIGO CO PLC reported lower earnings of $0.94 versus $1.65 in the prior year. This year, the market expects an improvement in earnings ($7.75 versus $0.94).
  • Net operating cash flow has decreased to $136.00 million or 30.29% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Pharmaceuticals industry and the overall market, PERRIGO CO PLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: PRGO

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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