A Big Time Investor Sees Value in Par Pharmaceutical (PRX)
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Shares of Par Pharmaceutical (NYSE: PRX) are reacting positively Monday amid a disclosure late Friday that multi-billion dollar investment fund Relational Investors has accumulated a nearly 9 percent stake in the company. Par last traded up nearly 7 percent to $31.
Relational Investors showed it now owns 3,177,431 shares of PRX. The fund accumulated the stock aggressively over the past few months, owing none at the end of September.
The investment group not only reported the stake but also had some commentary about the new position.
Relational Investors believes the shares are undervalued and made a number of recommendations to cure this valuation discount. The fund said if the discount persists the board should consider broad strategic alternatives.
The firm said several major factors have contributed to the undervaluation and underperformance: operating losses in the Strativa business, lack of visibility into the sustainability of the company's business model, and lack of a well-defined capital allocation discipline.
While Relational cited the losses at Strativa as one of the reasons for underperformance, the fund also said it is "gaining confidence that actions taken by the Company's management to right-size Strativa’s cost structure will improve the Company’s future earnings profile."
The proposed acquisition of Edict and recent acquisitions of Anchen and three generic products from Teva Pharmaceuticals position Par to generate sustainable earnings growth beyond 2012, Relational said.
Relational presented the views and concerns to Par's CEO and other management members on November 9. Following the meeting, Relational believes management understands the factors contributing to the undervaluation and is prepared to take action to improve its disclosure regarding the long-term growth prospects for the company as well as the company's capital allocation discipline.
Even though these actions could improve valuation, Relational believes the stock may continue to trade at a discount due to industry challenges and its sub-optimal size and product scope. If the discount persists, the firm believes the board will be required to consider broad strategic alternatives. Relational is confident "substantial cost savings could be achieved in a transaction with a strategic buyer."
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Relational Investors showed it now owns 3,177,431 shares of PRX. The fund accumulated the stock aggressively over the past few months, owing none at the end of September.
The investment group not only reported the stake but also had some commentary about the new position.
Relational Investors believes the shares are undervalued and made a number of recommendations to cure this valuation discount. The fund said if the discount persists the board should consider broad strategic alternatives.
The firm said several major factors have contributed to the undervaluation and underperformance: operating losses in the Strativa business, lack of visibility into the sustainability of the company's business model, and lack of a well-defined capital allocation discipline.
While Relational cited the losses at Strativa as one of the reasons for underperformance, the fund also said it is "gaining confidence that actions taken by the Company's management to right-size Strativa’s cost structure will improve the Company’s future earnings profile."
The proposed acquisition of Edict and recent acquisitions of Anchen and three generic products from Teva Pharmaceuticals position Par to generate sustainable earnings growth beyond 2012, Relational said.
Relational presented the views and concerns to Par's CEO and other management members on November 9. Following the meeting, Relational believes management understands the factors contributing to the undervaluation and is prepared to take action to improve its disclosure regarding the long-term growth prospects for the company as well as the company's capital allocation discipline.
Even though these actions could improve valuation, Relational believes the stock may continue to trade at a discount due to industry challenges and its sub-optimal size and product scope. If the discount persists, the firm believes the board will be required to consider broad strategic alternatives. Relational is confident "substantial cost savings could be achieved in a transaction with a strategic buyer."
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