Perrigo Announces Jobs Cuts, Consolidation of Supply-Chain Activities
Perrigo Company plc plans to consolidate its global supply-chain activities in Ireland, make strategic portfolio refinements, and reduce its global workforce by 800 employees or 6% of its global workforce. The company says these action will results in annual savings of $175 million.
“The actions we are announcing today are the next step in our strategy to leverage the powerful global platform we have built,” said Joseph C. Papa, chairman and chief executive officer (CEO) of Perrigo in a company statement issued October 22, 2015. “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 growthâ€“even better.”
The company is taking immediate steps to consolidate its operations, supply chain, and procurement management activities into one global center of excellence in Ireland to maximize value through the elimination of redundancies and enhancement of purchasing power. Global research and development 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.
Perrigo is also 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, R&D, information technology and services, human resources, and finance. These actions are expected to deliver $35 million in annualized operating benefits.
The company is also making strategic portfolio refinements. Perrigo is taking actions to refine its portfolio, including commencing a sales process for the US vitamins, minerals, and supplements (VMS) business. These actions are expected to improve the company’s operating margins and return on invested capital 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% 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.
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.
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 also reiterated its opposition to a proposed takeover of Perrigo by Mylan B.V. “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,” said Papa in a company statement. “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 [over-the-counter] consumer goods business like oursâ€“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.”