Depomed strikes unexpected deal with activist Starboard, adding J&J, Abbott vets to board


Depomed and activist investor Starboard Value have put aside their differences. The pair has reached a settlement, putting an end to a months-long proxy fight. But what's next for the California drugmaker?

Under the agreement, Depomed’s board will add three Starboard nominees--James Fogarty, former COO of Lehman Brothers Holdings; Robert Savage, former worldwide chairman for Johnson & Johnson’s pharma group; and James Tyree, former EVP of pharma products at Abbott Laboratories--to its board.

Depomed has also amended some of the company bylaws Starboard deemed unfriendly to shareholders, shifting the window for investors to nominate directors.

The settlement comes amid talk of a potential Depomed sale and soon after a patent decision in the company's favor on its biggest drug, Nucynta. A deal might be less likely, analysts figure, though other moves--including Nucynta's relaunch--are probably in the cards.

Starboard has agreed to withdraw its proxy solicitation, which will pull the plug on a special shareholder meeting scheduled for next month. It also won’t make any more nominations until the agreed-up period officially begins.

“We are pleased to have reached this agreement with Starboard, which we believe is in the best interests of our shareholders,” Depomed CEO Jim Schoeneck said in a statement. “We are confident that we are aligned to deliver significant value to our shareholders.”

Starboard and Depomed first went at it in April, with the former criticizing the latter’s “troubling record of egregiously manipulating the corporate machinery to entrench management and the board.” Squabbling ensued, with Starboard eventually seeking to oust Depomed’s entire slate of directors.

Last month, though, reports said Depomed was weighing taking some of Starboard's advice and putting itself up for sale--and it's unclear whether the settlement will alter any M&A calculations.

A company spokesman declined to comment Tuesday, noting that “our focus has been and will continue to be on building our business and bringing value to our shareholders.”

The way RBC Capital Markets analyst Randall Stanicky sees it, while a deal may be less likely post-settlement, “we do not think strategic moves will be off the table.” The company still has a high effective tax rate, he wrote in a note to clients, as well as a growing earnings base--thanks in part to a recent patent decision that'll protect key med Nucynta through 2025--and "that could be the opportunity to help drive strategic activity as either a buyer or a seller."

Stanicky sees the company potentially going after "creative structures with offshore companies"--such as troubled Endo, for example, which could potentially put its pain business up for sale as it takes stock of its businesses.

Meanwhile, though, Starboard has got other pharma ambitions. Last month, it began lobbying for a slimdown at Ireland’s Perrigo, a drugmaker whose results it says have “gone decidedly in the wrong direction” and whose management’s promises “have been woefully unfulfilled.” 

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