In total, the actions are expected to add incremental benefits of $175m when the full run rate of the plan is achieved.
With the inclusion of approximately $0.153 in EPS derived from $500m in share repurchases to be completed in 2015, Perrigo expects to deliver adjusted EPS of approximately $9.45 in 2016. This represents a 22 percent increase over the calendar year 2015 EPS guidance midpoint.
Perrigo chairman and CEO Joseph Papa said: "The actions we are announcing today are the next step in our strategy to leverage the powerful global platform we have built.
"The acquisition of Elan in 2013 provided an international gateway for our durable base business model, and the purchase of Omega Pharma earlier this year provided us a pan-European branded consumer healthcare business that is delivering greater benefits than we originally expected.
"We are taking steps to ensure that we fully capture the benefits of our global platform to drive continued strong profit growth and build substantial shareholder value. With these actions we are making a great company – with an outstanding track record of value creation and compelling prospects for continued growth – even better."
Papa continued, "These actions will amplify the earnings power of our business, with each dollar of revenue driving greater profit accretion and more value for shareholders. We expect to deliver 22 percent adjusted EPS growth in 2016, even without the full run rate of benefits from our initiatives. Our confidence in the Company’s compelling near and longer-term growth prospects – and steadfast commitment to shareholder value – is underscored by the $2.0 billion repurchase plan we are announcing today."
The Company’s actions are focused on maximizing efficiency and productivity, and further leveraging the strength of Perrigo’s global platform. These actions include:
Consolidation of Global Supply Chain Activities in Ireland
The Company is taking immediate steps to consolidate its operations, supply chain and procurement management activities into one global center of excellence in Ireland in order to maximize value through the elimination of redundancies and enhancement of purchasing power. 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.
Organizational Enhancements
Perrigo 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. These changes strengthen Perrigo’s focus on organic growth strategies, while ensuring efficient global capabilities in quality, research and development (R&D), information technology and services, human resources and finance. These actions are expected to deliver $35 million in annualized operating benefits. Perrigo will not compromise its focus on innovation, and will take these actions in a manner that preserves its growth strategies and ensures that it is well supported by a quality team.
Strategic Portfolio Refinement
Perrigo is taking actions to refine its portfolio, including commencing a sales process for the U.S. Vitamins, Minerals and Supplements (VMS) business. These actions will improve the Company’s operating margins and return on invested capital (ROIC), and are expected to deliver $35 million in annualized operating benefits.
In total, Perrigo will reduce its workforce by approximately 800 employees, or approximately 6 percent of its current global headcount. The Company estimates the total cost of implementing the actions to be between 0.25x to 0.50x of the total $175 million annualized run rate benefits.
Promotion of John Hendrickson to President
Perrigo also announced that John Hendrickson, formerly Executive Vice President, Global Operations and Supply Chain, will be promoted to the position of President, effective immediately, reporting to Chairman and CEO, Joe Papa.
Mr. Papa said, "John is the ideal leader to oversee the transformational initiatives announced today. With 26 years of experience at Perrigo, he has a deep understanding of our business, proven management skills and a strong, competitive drive to ensure Perrigo continues to deliver at the highest levels in our industry in terms of quality, efficiency and innovation. In combination with John’s promotion we are streamlining the top tier of our organizational structure, increasing efficiency and enabling me to focus more time on overall strategy and executing on our M&A priorities."
Share Repurchase Plan
Perrigo is announcing a $2 billion share repurchase plan. The 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.
The Company expects that the $500 million of share repurchases will add approximately $0.155 to Perrigo’s 2016 adjusted earnings per share guidance.
Including the expected benefit of the $500 million in initial share repurchases and the full run rate $175 million benefits of the actions announced today (approximately $0.38 per share), Perrigo expects a pro forma run rate EPS of $9.836 in 2016.
Papa said: "The actions we are announcing today to drive substantial profit growth make the gross inadequacy of Mylan’s offer clearer than ever. 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. It is fundamentally irrational to believe that Mylan can run this business better or more profitably than our team.
"With the well-publicized market pressures on generic and branded pharmaceutical companies like Mylan, it’s not surprising that Mylan would want to add a top five, durable global OTC consumer goods business like ours – but make no mistake, this is a terrible deal for Perrigo shareholders. 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."