Why Depomed Is Rising on Activist Pressure

Depomed Inc. (NASDAQ: DEPO) saw its stock surge early Friday morning following news of an open letter from an activist firm. Starboard Value, one of the largest shareholders of Depomed, with an ownership stake of 9.8%, announced that it delivered a letter to President and CEO Jim Schoeneck and the board of directors.

Previously this activist firm has taken stakes in the likes of Staples, Office Depot, Yahoo and Darden Restaurants, to name a few.

In the letter, Starboard Value said that it believes Depomed is deeply undervalued and that significant opportunities exist to create value. However, the firm is highly concerned regarding a number of actions the board has taken that indicate meaningful change is needed to ensure the company is acting in the best interest of all shareholders.

The firm has significant concerns regarding what it sees as serious corporate governance deficiencies, questionable capital allocation decisions and egregious actions taken by the board of directors to “stymie” strategic interest in acquiring Depomed. In simpler terms, Starboard Value sees missed opportunities that Depomed has had to create value for shareholders.

Starboard Value cited one particular instance in its letter:

Unfortunately, these shareholder-unfriendly tactics are just the latest attempts by the current Board to further entrench themselves.  The Board took similar actions following Horizon’s unsolicited proposal to acquire the Company.  Specifically, on July 7, 2015, the Company received an unsolicited offer from Horizon 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 price of $20.64 per share on July 6, 2015.  At the time, this $29.25 per share offer price would have represented an all-time high stock price for the Company, and compares to the current Depomed stock price of $15.00 per share as of yesterday’s close.

Depomed responded to Starboard Value shortly after this letter was made public in typical fashion, noting that the company “values constructive input toward the goal of enhancing shareholder value.”

Shares of Depomed were trading up 16% at $17.41 early Friday, with a consensus analyst price target of $22.75 and a 52-week trading range of $12.25 to $33.74.