Shares of Valeant (VRX) are on the rise after The Wall Street Journal reported this morning that the company will soon announce Perrigo's (PRGO) Joseph Papa as its new CEO. The potential deal with Papa caught Jefferies analyst David Steinberg by surprise, as he believes the move would raise several questions for Perrigo.
NEW CEO?: Valeant is expected to announce as soon as next week that Perrigo's CEO Joseph Papa will succeed Michael Pearson as its CEO, according to The Journal, citing people familiar with the matter. The sources added that Valeant has reached a deal with Papa, but noted that Perrigo's board had not said whether it would allow Papa to void a noncompete clause in his contract. Valeant believes the overlap between the companies "to be limited" and that the companies are "rarely considered direct competitors," the publication said. Valeant said last month it was seeking a successor for Michael Pearson after the CEO lost the support of the company's board.
SURPRISING DEPARTURE: Jefferies' Steinberg believes media reports indicating that Perrigo's Papa will take over at Valeant "qualifies as a shocker." The analyst noted that Papa promised to "turn things around" at Perrigo and finds him leaving without "righting the ship" to be "out of character" for the CEO. The analyst sees many reasons why Valeant's board would like to hire Papa, including his retail expertise, negotiating ability and extensive experience with managed care organizations. However, Steinberg is concerned over whether Papa is motivated enough for the "immense" challenges facing Valeant and his unclear qualifications as a turnaround expert. The analyst noted that this possible departure means more questions than answers for Perrigo.
NEGATIVE FOR PERRIGO: Wells Fargo analyst David Maris also voiced concern this morning, saying that if Papa does in fact take the reins at Valeant, his loss would be negative for Perrigo, which is in the middle of its own turnaround. The remaining issue appears to be a noncompete clause in the CEO's contract, which Perrigo's board has yet to agree to void, the analyst noted, adding that Papa joined the company as CEO in October 2006 and became Chairman of the board a year later. Wells Fargo has an Outperform rating on Perrigo's shares.
PRICE ACTION: In morning trading, shares of Valeant jumped about 8% to $35.92, while Perrigo's stock slid more than 3.5% to $124 per share.
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