Perrigo climbs to record highs as Elan takeover cuts tax rate
DRUGMAKER Perrigo has climbed to record highs, with investors betting the company will look for further acquisitions after the purchase of Elan significantly lowered its tax rate.
Shares in the Dublin-based company gained 4.8pc to $161.70 (€118.30) last week in New York, the highest level since its 1991 debut. The stock has gained 20pc since the drugmaker said in July that it would buy Elan for $8.6bn.
"The lowering of their tax rate puts them in a position to go out and make a lot of acquisitions, which is how they're going to grow," said Marc Goodman, a research analyst with UBS in New York. "What you're seeing is the ripple effect of the excitement going on, that's why Perrigo's going up."
A large number of Irish former Elan shareholders recently gained a stake in Perrigo following approval of the acquisition, which lowered Perrigo's tax rate to about 20pc from around 30pc.
Perrigo -- which sells a host of generic drugs and consumer products and has an $11.8bn market capitalisation -- agreed to pay the equivalent of $16.50 for every Elan share, a mixture that included $6.25 in cash and 0.07636 in Perrigo shares.
Royal Bank of Canada (RBC) said last week that Perrigo is its top pick for 2014.
Even without acquisitions, RBC expects Perrigo's earnings to rise 17pc from a year ago to $1.59 per share in the second quarter as more prescription drugs are approved to be sold over the counter. Revenue will rise to a record $4.2bn in 2014, it said.
"Perrigo's earnings power is something we think is underappreciated, and as that becomes better understood, the stock is likely to move with it," said Randall Stanicky, an analyst at RBC Capital Markets.
Perrigo sells non-prescription products as well as generic drugs, nutritional supplements and animal treatments. The company makes lower-priced, generic versions of popular drugs, like a version of Johnson & Johnson's Tylenol pain reliever for US retail giant Wal-Mart.
It expanded into pet care products in 2012 and last year acquired Velcera, an animal health provider, for $160m. The company has said it's interested in making more US acquisitions in the areas of eye care, animal nutrition and diabetes as well as expansion overseas.
Its acquisition of Elan, Ireland's largest ever corporate takeover, was agreed last summer after Elan avoided a hostile takeover attempt by another US firm, Royalty Pharma. (Additional reporting from Bloomberg)