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Morning Commentary: Depomed surges in active trade after activist letter to the board
By Rebecca Melvin
New York, April 8 – Depomed Inc.’s convertibles were surging in active trade early Friday after the Newark, Calif.-based specialty pharmaceutical company and Starboard Value LP disclosed that the investor holds a 9.8% ownership stake in the company and is pushing for better execution and capital allocation, removal of the board and potentially a sale of the company.
Depomed’s 2.5% convertibles jumped about 9 points on an outright basis to 109.125 and expanded on a dollar-neutral, or swap, basis by about 2.5 points, a New York-based sellsider said.
Depomed shares were up $1.87, or 12.5%, to $16.87.
In a letter delivered to Depomed’s chief executive and board of directors, Starboard wrote that it believes significant opportunities exist to create value and that it was seriously concerned about what it sees as corporate governance deficiencies. It is also disappointed about a reincorporation proposal at the 2016 annual meeting to change the company’s incorporation to Delaware from California. Starboard said it sees this change as an effort to entrench the board.
The Starboard letter also referred back to the unsolicited offer from Horizon Pharma plc last summer to acquire all of the outstanding shares of Depomed in an all-stock transaction for $29.25 per share, which represented a 42% premium to the closing share price of $20.64 on July 6.
Depomed stock reached a high of $33.74 on July 21, following Horizon's final offer of $33.00 per share. But since then, Depomed’s stock price has declined 56%, resulting in significant losses for shareholders, the Starboard letter pointed out.
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