Deal Reporter
Mylan’s (NASDAQ:MYL) USD 29bn offer for Perrigo (NYSE:PRGO), made public on Wednesday, could lead to a land grab in the specialty pharmaceuticals sector with more bidders joining the fray, according to two industry bankers and three investors.
Mylan, based in the UK, disclosed in a public letter that it made a USD 205 per share offer for Perrigo, saying such a combination “offers clear and compelling strategic and financial benefits.” In response Dublin-based Perrigo said its board would “discuss the proposal” and would comment “when appropriate.”
Both Mylan and Perrigo shares surged on the news, with Perrigo closing up 18.4% to USD 195 and Mylan up 14.7% to USD 68.36. Others major players in generic and branded pharmaceuticals also made gains, including Teva Pharmaceutical Industries (NYSE:TEVA), which rose 3.5% to USD 66.52.
The two industry bankers said Mylan’s offer for Perrigo could be a defensive move to ward off Teva, which has recently been viewed as taking an interest in buying Mylan.
According to the first industry banker and a Perrigo shareholder, Teva, the largest of the three companies, would likely prefer to do a friendly deal and, as such, would unlikely go hostile. If Mylan succeeds in taking over Perrigo, the chances of a Teva-Perrigo combination are less likely. The same banker and the shareholder described Mylan’s move as “smart and aggressive.”
Teva and Perrigo were not immediately available for comment.
“Mylan has been speculated as a target for Teva for a while and [Teva] needs to do a big acquisition,” said one of the bankers. The second banker said Mylan Executive Chairman Robert Coury would want to be “master” of any expanded Mylan, which may not be afforded in a Teva takeover, giving credence to the idea that among Mylan’s reasons for buying Perrigo could be to fend off Teva.
Both bankers speculated that Mylan’s bid for Perrigo could lead to both companies becoming takeover targets by the likes of Actavis (NYSE:ACT), Novartis (NYSE:NVS), Valeant (NYSE:VRX) or Pfizer (NYSE:PFE), all of which have demonstrated interest in large deals.
“Mylan’s stock is up not necessarily because their shareholders love this deal, but because there is a chance that someone else comes in for Mylan,” said the first banker.
Two Perrigo shareholders said others like Cardinal Health (NYSE:CAH), Sanofi (NYSE:SNY) and Abbott Laboratories (NYSE:ABT) could also take a look at Perrigo. One of these shareholders said big pharma companies like sustainability of cash flow and global infrastructure, and Perrigo brings that to the table.
However, the first banker was not as bullish on big pharma companies chasing either Mylan or Perrigo.
One healthcare industry investor who does not own either stock said he believed both Mylan and Perrigo shares were up because investors like the synergies and accretion that would be offered by a merger. But he also agreed with the bankers that such a deal could prompt Teva to make a move for Mylan.
“Synergies between Teva and Mylan would be enormous,” this investor said. “There could be some antitrust issues but they are surmountable.”
The second industry banker agreed that any combination of the three and with others could face antitrust issues but was of the view that approvals could be obtained with product divestitures.
In the letter, Mylan said it had retained Goldman Sachs as its advisor. It was not immediately clear which bank was advising Perrigo. In its last major deal, the USD 4.7bn agreed purchase of Belgium’s Omega Pharma last November, Perrigo was advised by JPMorgan and Barclays.
The first industry banker said if Perrigo agrees to allow Mylan to do due diligence, there was a reasonable chance it could lead to a higher offer. But the banker cautioned that Perrigo CEO Joseph Papa has his own acquisition strategy and may not want to sell.
The first Perrigo shareholder said the company has been underperforming for a while and on an unaffected price of USD 165, prior to Mylan’s move, a 45% premium could bring the valuation to USD 230 to USD 240. With Mylan stock having moved up today, the current value of the offer is likely already higher than USD 205 per share. He and the first banker said it is hard to ascertain the offer’s worth, as Mylan did not provide any breakdown of the cash-and-stock offer.
In an interview with this news service in February, Perrigo’s Papa said his strategy is to become a worldwide provider of generic and branded healthcare products, using the Omega acquisition as a platform for European expansion and a possible Asian acquisition as a platform for growth in China and other Asian countries. This news service further reported that a combination between Mylan and Perrigo would be highly synergistic.