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Sohn Conference: Jeff Smith Pitches Depomed (DEPO), Westrock (WRK)

Insider Monkey was in attendance at the Next Wave Sohn Conference in New York today and we have all the details from Jeffrey Smith‘s presentation, in which the head of Starboard Value pitched his bullish theses on Depomed Inc. (NASDAQ:DEPO) and WestRock Co (NYSE:WRK), two of his fund’s top positions.

Mr. Smith began by detailing his firm’s rationale insofar as how it selects companies to invest in, which not only includes finding undervalued companies, but also companies in which the firm believes it sees a clear path to value creation. Mr. Smith added that his activist firm has been successful in replacing 162 board members at companies in the past 10-to-12 years.

Jeffrey Smith
Jeffrey Smith
Starboard Value LP

Mr. Smith’s first pitch was on Depomed Inc. (NASDAQ:DEPO), a company in which his firm just recently took an activist position in, consisting of 5.64 million shares, with economic exposure to an additional 375,000 shares. Starboard Value expressed wide-ranging concerns about the company’s governance and some of its initiatives along with the initial 13D filing on its position and immediately signaled its intention to try and add to its impressive total of replaced board members by announcing its plans to nominate a slate of director candidates for the company’s board at a special meeting.

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Speaking of Depomed’s growth potential at today’s conference, Mr. Smith said:

“[…] we believe Depomed has several sources of growth within its portfolio, including treatments for shingles pain, migraines, and breakthrough cancer pain.”

Mr. Smith did however express concern over the pharmaceutical company’s lack of scale, which he believes could be forcing it to make poor capital allocation and/or strategic business decisions. Among other things he cited the debt that the company took on last year to help fund its acquisition of the rights to NUCYNTA, which has an alarming interest rate of nearly 11%. The company has also expressed its desire to make further acquisitions rather than pay down its expensive debt load, which Mr. Smith does not believe is in the best interests of shareholders.

Furthermore, Mr. Smith was critical of Depomed Inc. (NASDAQ:DEPO)’s refusal to engage with Horizon Pharma PLC (NASDAQ:HZNP) last year, after that company made a generous buyout offer at a 60% premium to Depomed’s share price at the time. Mr. Smith detailed some of the questionable actions that Depomed management took afterwards to insulate itself, some of which he had expressed in the aforementioned filing and in a letter sent to the company’s board some time after said filing, and asserted that shareholders need to ensure that Depomed has a board looking out for their interests, while stating his firm’s attempt to overthrow said board.

We’ll discuss Mr. Smith’s presentation regarding WestRock on the next page.

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