Sohn Conference

Starboard's Smith targeting pharma firm for proxy fight


Starboard Value is making a move against a pharmaceutical company it says is mismanaged, CEO Jeff Smith said Wednesday.

Smith said his activist firm is looking to replace the board at Depomed, a pharma company that specializes in pain and neurology products.

While the company in recent years "has seen strong growth in many of its core products," it remains hampered by a lack of scale and an over-emphasis on remaining independent, Smith said. On the latter point, he criticized Depomed for fighting off an offer last year from Horizon Pharma, which was offering a 60 percent premium for the company.

"We are concerned that this lack of scale potentially pushes the company to make poor capital allocations and poor strategic decisions," he said Wednesday at the Ira Sohn Investment Conference in New York.

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"We believe the pressure of being subscale and the desire to remain independent may cause management and the board to make decisions that are not in the best interests of shareholders," Smith added.

Smith recently said the firm is launching a proxy fight against Yahoo. Starboard is similarly looking to replace Depomed's board.

Depomed did not immediately respond to requests for comment.

Smith also made a pitch for WestRock, a producer of corrugated packaging that he said represents an example of a company that worked with Starboard to make positive improvements. He feels the company is sharply undervalued.

"This is a good business with high barriers to entry with a price that implies the business is in secular decline. We do not believe this business is in secular decline," he said. "We believe that cardboard and packing are not going away anytime soon."

WestRock should be worth about $71 a share within a year, compared to the $38.80 where it was trading Wednesday afternoon, Smith said. Shares were down about 1.9 percent, though the price popped during Smith's presentation.