Mylan left behind in pharma deal wave as Perrigo attempt fails3 min read . Updated: 14 Nov 2015, 01:39 AM IST
Drug maker loses out on biggest attempt yet to join a wave of consolidation sweeping the generic drug industry
New York: Mylan NV’s $26 billion bid for Perrigo Co. failed Friday, and the drugmaker has lost out on its biggest attempt yet to join a wave of consolidation sweeping the generic drug industry.
Most recently, Mylan’s top competitor Teva Pharmaceutical Industries Ltd struck a $40 billion agreement in July to buy Allergan Plc.’s generic operations.
On Friday, however, Perrigo shareholders tendered only about 40% of their shares to Mylan by the deadline as part of Mylan’s unsolicited offer to buy the over-the-counter drugmaker. Half were required for a deal to move forward.
Perrigo shares slid 6.8% to $145.96 at 10:40pm IST. Mylan shares rose 13% to $48.99. Mylan now can’t try to buy Perrigo again for a year.
Mylan’s executive chairman Robert Coury promised that he would move quickly onto the next acquisition attempt.
“Mylan viewed Perrigo as a unique and exciting opportunity, but not one that was required for the future success of our company," Coury said in a statement announcing the offer’s failure. “We are well-positioned to quickly execute on the next strategic, value-enhancing opportunities for our business, some of which we have already identified."
While Coury had promoted the deal as a logical step in Mylan’s strategy, advisory firm Institutional Shareholder Services had warned that the acquisition wouldn’t be profitable for Mylan in the first three years after completion.
“Mylan was better off without Perrigo so I think it’s a good thing for them," Louise Chen, an analyst with Guggenheim Securities, said in an interview. Chen has a neutral rating on Mylan shares. “It seems like they’d be interested in generics deals, this is something they’ve always kept as their core strategy. They’ve remained one of the pure-play generics companies."
Coury, through a spokesman, declined to be interviewed.
Perrigo, likewise, has said it too plans to go its own way and look at deals.
“We have said all along that this offer from Mylan was a bad deal for our shareholders," Perrigo CEO Joseph Papa said in a statement. The company said it will go ahead with a previously announced $2 billion share buyback, and plans to repurchase $500 million of its own shares by the end of the year.
“Once we get beyond this Mylan situation, we’ll look at other opportunities as far as M&A is concerned," Papa told reporters in Tel Aviv last month. “We’ve been very active ourselves in M&A and I do expect we’ll be doing more deals."
Mylan offered $75 in cash and 2.3 Mylan shares for each Perrigo share, a bid that Dublin-based Perrigo had rejected as inadequate. Perrigo makes prescription and over-the-counter drugs that Mylan wanted to add to its lineup as EpiPen, its allergy medication, faces generic competition as early as next year. Mylan initially argued that the Perrigo deal was a better alternative than accepting a takeover offer from Teva. Teva later walked away from a deal with Mylan in favour of buying Allergan’s generics business.
Mylan was overpaying for Perrigo, Ronny Gal, an analyst at Sanford C. Bernstein and Co., said in a note before the official results were released. A failed bid frees up executives to focus on better moves such as share repurchases or acquisitions of the generic assets of Sanofi or Pfizer Inc., he said.
The Perrigo acquisition would have added to sweeping changes in the drug industry as manufacturers and distributors use mergers to gain leverage in negotiations over price. While Mylan and Teva sought to grow larger through acquisitions, Walgreens Boots Alliance Inc. struck a deal to buy fellow drugstore chain Rite Aid Inc., and CVS Health Corp. agreed to take control of Target Corp.’s pharmacies and clinics. Those other deals are still awaiting clearance from regulators. Mylan won US antitrust approval for the Perrigo bid after agreeing to sell rights to seven generic drugs to resolve claims that the purchase would harm competition.
To defend itself, Perrigo had raised questions about whether Mylan acts in the best interests of its shareholders. The generic drugmaker, based in the Netherlands and run from Canonsburg, Pennsylvania, said it would ask its shareholders to vote on changes to its corporate governance, including the nomination and election of directors, if it were to complete its bid for Perrigo.
Mylan also said last week that it would propose a shareholder vote on whether to retain a Dutch structure known as a stichting, an independent foundation that can help block takeover attempts. It didn’t specify what changes it would make on board elections. It’s unclear whether the company still plans to revise its corporate governance if the Perrigo bid fails. BLOOMBERG
Melissa Mittelman contributed to this story.