The shares of Perrigo (PRGO) are rallying after investment adviser Starboard Value said it had taken a 4.6% stake in the company and called Perrigo’s stock “deeply undervalued.” Starboard also criticized Perrigo for allegedly breaking promises to shareholders, suggested that it consider selling two of its non-core assets, and called on the company to increase its focus on its core business.

STARBOARD STAKE: Starboard announced that it had obtained a 4.6% stake in Perrigo, which develops and markets over-the-counter medications.

STARBOARD LETTER: Perrigo is “deeply undervalued,” and the company has opportunities to create value for its shareholders, Starboard Value’s Jeffrey Smith wrote in his letter to Perrigo’s CEO and its board. Smith criticized the company for allegedly failing to keep the promises it made when it urged shareholders to reject a hostile takeover offer by Mylan (MYL) last year. Since the offer was rejected, Perrigo’s management has made a number of key mistakes, Smith alleged. But the company has valuable core assets, he wrote. Smith indicated that Perrigo should sell its prescription drug business. The latter business and Perrigo’s royalties from the multiple sclerosis drug Tsybari are not adequately reflected in its stock price, he stated. Perrigo “could benefit” from outside advice regarding a potential sale of both assets or other strategic steps it could take involving the assets, Smith contended. Moreover, declines in the margins of Perrigo’s Branded Consumer Healthcare business suggest that the company’s “execution” and “focus” are unsatisfactory, he wrote.

PERRIGO REACTION: The OTC drug maker responded in a press release by saying that it “looks forward to a constructive and proactive dialogue” with Starboard. Perrigo added that it would continue to carry out several key initiatives and indicated that its most important goal remains “delivering value” for shareholders.