The Morning Brief: Investors Think Starboard-Depomed Deal is Bad Medicine

March 31, 2017  


The market apparently didn’t like the deal between the activist hedge fund firm and the specialty pharmaceutical company.

Shares of Depomed fell about 7 percent and are now off nearly 10 percent over the past two days after Starboard Value announced a settlement with the specialty pharmaceutical company that specializes in neurology-related products. The stock is now down 29 percent year-to-date.

After the market closed on Tuesday, Depomed announced it brought in health care veteran Arthur Higgins to serve as president and chief executive officer. In addition, it said Gavin Molinelli, a partner at Starboard, is one of four individuals who have joined the board of directors. At the same time, two individuals resigned from the board. Under the deal, Molinelli will serve as chairman of the nominating and corporate governance committee and will serve on the compensation committee.

"We are pleased to have reached an agreement to work with Depomed," said Molinelli in a joint press release. "We believe that Arthur Higgins is an excellent choice to lead Depomed. We are excited to have found such a qualified leader for the company."

Before joining Starboard and its related funds in 2006, Molinelli was a member of the technology investment banking group at Banc of America Securities. He previously served on the board of Wausau Paper Corp. and Actel Corporation. Starboard is the second-largest shareholder, with 8.8 percent of the shares. In September, the hedge fund firm publicly said Depomed would be "extremely attractive" to numerous potential acquirers. In early January, there were published reports that private equity giant KKR may make a bid for Depomed.

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Separately, Jeffrey Smith’s Starboard Value disclosed it had $5.3 billion under management as of year-end, up about 16 percent from a year ago. This increase is in line with the activist’s performance last year, suggesting it did not raise money in 2016.

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Two Sigma Ventures, the venture capital arm of Two Sigma, participated in the $6.5 million financing of Carbon Health, a healthcare startup that uses a phone app to provide virtual doctors as well as a host of services.

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Separately, Two Sigma agreed to pay a fine of $25,000 as part of a settlement with the Chicago Board of Trade, which accused it of violating position limit rules. Under the settlement, the computer-driven hedge fund firm neither admitted nor denied the rule violation. The transgression stems from trades it made in wheat futures on February 22, 2016.


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