Assessing Davidson Kempner Capital Management's 4Q13 positions

Part 2
Assessing Davidson Kempner Capital Management's 4Q13 positions (Part 2 of 7)

Davidson Kempner Capital buys a new position in Perrigo in 4Q13

Davidson Kempner Capital Management and Perrigo

Davidson Kempner initiated positions in Perrigo Co. PLC (PRGO), Lamar Advertising Co. (LAMR), Apple Inc. (AAPL), and LSI Corp. (LSI). The fund and exited its positions in Whitewave Foods (WWAV) and McDonald’s Corp. (MCD).

Davidson Kempner initiated a new position in Perrigo Co. PLC (PRGO) that accounted for 4.99% of the fund’s 4Q portfolio.

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Perrigo Company PLC, headquartered in Ireland, is the world’s largest manufacturer of OTC healthcare products for the store brand market and an industry leader in pharmaceutical technologies. The company has five reportable segments, aligned primarily by type of product: Consumer Healthcare, Nutritionals, Rx Pharmaceuticals, API, and Specialty Sciences. As a result of the Elan acquisition on December 18, 2013, the company expanded its operating segments to include the Specialty Sciences segment, which comprises assets focused on the treatment of Multiple Sclerosis (Tysabri) and Alzheimer’s.

At the close of the transaction, Perrigo and Elan combined under Perrigo Company PLC, a new company incorporated in Ireland. Under the deal, Elan shareholders received $6.25 in cash and 0.07636 shares of the combined Perrigo Company for each Elan share. Perrigo’s management believed the $9.5 billion acquisition of Elan provides recurring annual operational synergies and related cost reductions. The company expects to have a lower future tax rate due to changes to the estimated jurisdictional mix of income and the new corporate structure attributed to the acquisition of Elan.

Perrigo’s 2Q 2014 results missed on revenue but beat earnings estimates. The company reported an increase in net sales in 2Q 2014 to $979 million—an increase of 11% over the second quarter of fiscal 2013, driven primarily by $53 million in new product sales and $39 million attributable to the acquisitions of Rosemont Pharmaceuticals Ltd, Fera Pharmaceuticals, LLC, Elan Corporation, and Velcera, Inc., along with continued growth in its overall base business. Perrigo saw a GAAP net loss of $86 million, or $0.87 per diluted share, due primarily to $269 million of acquisition-related charges, including loss on extinguishment of debt. Management said sales were driven by Perrigo’s Rx and Nutritional business segments and strong new product sales. However, sales within the Consumer Healthcare segment were impacted by a later start to the cough, cold, and flu season.

PRGO hedgeEnlarge GraphPerrigo recently announced it has acquired a basket of value-brand OTC products sold in Australia and New Zealand from Aspen Global Inc. for $51 million in cash. The products primarily sell through the mass retail channel and include the Herron range of analgesics, vitamins, and supplements.

Perrigo expects fiscal 2014 adjusted earnings to be between $6.45 and $6.70 per diluted share, compared to $5.61 in fiscal 2013. This range implies a year-over-year growth rate in adjusted earnings of 15% to 19% over fiscal 2013′s adjusted earnings per diluted share.

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