Activist investor Starboard targets Parexel amid talk of multibillion-dollar sale

Parexel building
Activist investor Starboard discloses 5.7% stake in Parexel.

Activist investor Starboard Value is demonstrating its confidence in Parexel by disclosing a 5.7% stake buy in the company, immediately after news of the CRO’s potential $4 billion sale went out on the street.

In an SEC filing just submitted, Starboard says it has bought about 2.88 million shares (5.7% stake) in the up-and-selling Parexel on May 2, 2017. The New York hedge fund went further in the 13-D filing, saying that it purchased the shares based on its belief that the shares “were substantially undervalued” and that it believes there is “a substantial opportunity to improve [Parexel’s] operating margins.”

That is probably going to play out, given that the CRO had been in the process of several rounds of job cuts since it dialed down its 2016 outlook in 2015. Those include 850 jobs announced 2015, in order to save about $20 million to $30 million a year from 2016, plus 1,100 to 1,200 worldwide announced just a few days ago.

To help guide the process, Starboard sought the wisdom of an industry veteran—Jamie Macdonald, formerly INC Research’s CEO (which itself has just this week merged with inVentiv), and prior to that, SVP and head of global project management with Quintiles.

Starboard’s participation adds to Parexel’s existing list of activist investors, including Corvex Management, which The Wall Street Journal previously reported “has built a sizable stake in Parexel.”

As for Starboard itself, the activist investor had previously been in a brawl with struggling Depomed as its investee. The pharma company had experienced trial failures, lawsuits and a significant potential investor walk-away.

After a months-long proxy fight, the two finally settled the acrimonious discord recently with Depomed agreeing to consider a sale, and changing its board as well as executive leadership (including its CEO), all as desired by Starboard.

The question now is, will Starboard pressure the same demands again with Parexel? Clues from the SEC filing say it may just be, and Starboard might not be alone there.

Starboard, while casting a confidence vote in Parexel’s future, also refers to the CRO’s recent lackluster performance, by pointing out “the large disparity in [Parexel’s] margins versus its best-in class peers.” The WSJ, citing people familiar with the matter, also reported that shareholders are blaming the CRO’s management and board, which have remained largely unchanged for the past decade.

Plus, the filing also adds more weight to the possibility of Parexel’s sale as the company still hasn’t made any official announcement yet. Starboard says it was well aware that the CRO may be working with investment bankers to explore a sale, and gives its blessing by saying that “there would be significant strategic and financial buyer interest in such sale process.”