Perrigo Confronts Securities Fraud Lawsuit, Amplifying Existing Financial and Legal Risks

What happened

Levi & Korsinsky has filed a class action lawsuit against Perrigo, alleging securities fraud between February 2023 and November 2025. This legal action compounds Perrigo's pre-existing challenges, including a €1.64bn Irish tax dispute and elevated leverage with net debt/EBITDA at approximately 7x. The company's stock has plummeted around 52% over the past year, reflecting market skepticism towards its restructuring efforts and financial stability. Perrigo is currently executing cost-reduction programs like Project Energize to boost margins and generate free cash flow. However, the lawsuit threatens to further undermine investor confidence and could impede progress on deleveraging and operational improvements.

Implication

Investors must now factor in the direct costs and management distraction from this lawsuit, which may divert resources from critical restructuring initiatives like Supply Chain Reinvention. Allegations of fraud could damage Perrigo's credibility with stakeholders, making it harder to secure financing or maintain customer relationships amid soft OTC demand. Given the thin interest coverage of ~1.7x, any financial penalties or settlements from the lawsuit could strain the company's ability to service debt, worsening its leverage position. The stock's current distressed valuation (EV/EBITDA ~3.3x) might not fully incorporate this new risk, suggesting potential for further depreciation if legal proceedings escalate. However, for contrarian investors, the increased pessimism could deepen the value opportunity if Perrigo resolves the lawsuit favorably and delivers on cost-saving targets, but this requires heightened risk tolerance.

Thesis delta

The class action lawsuit adds a new legal overhang that was previously underemphasized, increasing the downside risk and potentially delaying the deleveraging timeline. This shifts the investment thesis slightly towards greater caution, as it heightens the probability of thesis invalidation triggers like balance sheet weakening. However, the core potential buy case—based on distressed valuation and execution of cost-saving programs—remains intact but is now more contingent on favorable legal outcomes.