Depomed Inc. (NYSE:DEPO) shares jumps more than 12 percent on Friday after the news that activist investor Starboard Value LP has taken large stake in the drug maker.
The activist investor disclosed that it had taken about 6 million shares, or about 9.8 percent of share outstanding in Depomed. Starboard’s chief executive Jeffrey Smith considered this as great investment opportunities, saying that the opportunities include improved capital deployment, rationalized research and development, and a potential sale of the company.
“We acquired our position in Depomed because we believe that the company is substantially undervalued and opportunities exist to create significant value for shareholders,” wrote Jeffrey Smith, Starboard’s chief executive.
But the New York hedge fund also pointed out some problems in the company, including serious corporate governance deficiencies, questionable capital allocation decisions, and mishandling the takeover offer from Horizon Pharma PLC.
“These concerns lead us to believe that management and the board may be more interested in entrenching themselves than in delivering maximum value for all shareholders,” Mr. Smith said in the letter.
The hedge fund also said that it would nominate a new crop of directors to the company's board.
Depomed responded Friday by saying it “welcomes open communications with its shareholders and values constructive input.”
Depomed shares rose 11.40 percent to $16.70 at 12:07 p.m. in New York. The stock had fell more than 56 percent since its high in July.