DEAL REPORTER
Teva Pharmaceutical (NYSE:TEVA) is meeting with Mylan (NASDAQ:MYL) shareholders to persuade them on the merits of a deal in the hopes they will pressure Mylan management to engage in talks with Teva, according to two sources familiar with the situation.
The Israel-based generics major has been on the road to discuss its bid with some shareholders and plans to continue to meet more shareholders over the next few weeks to explain the value proposition of the deal, the sources said.
The Mylan shareholders that Teva management has met with so far have been supportive of Teva’s move, both sources said.
On 21 April, Teva proposed to acquire Mylan for USD 82 per share, with the consideration to consist of approximately 50% cash and 50% stock. Teva’s proposal for Mylan implies a total equity value of approximately USD 43bn and an enterprise value of approximately USD 50bn.
Teva said its board and management team are committed to consummating a transaction as soon as possible.
Teva had decided to send the public letter to Mylan as there was substantial press speculation regarding Teva’s interest in acquiring Mylan, both sources said. The letter was “just a function of investor demand due to the rumors”, the first source noted.
The first source did not say whether Teva would increase its offer for Mylan, but said that, given Mylan shares were trading in the USD 50s before M&A speculation arose, Teva put a “big number” on the table.
Teva’s commitment to this deal is evident from the fact that it already kickstarted the regulatory review process by making a Hart-Scott-Rodino filing this week, the first source said. However, he described Teva is a disciplined buyer.
Teva’s USD 82-per-share offer not only represents a steep premium but would also provide Mylan shareholders with continuing ownership in pro-forma Teva, which is a well-capitalized and higher-growth company, the same source argued.
If Mylan does not agree to a deal with Teva and Mylan’s proposed acquisition of Perrigo (NYSE:PRGO) does not come through, Mylan stock will likely slump back into the USD 50s, he said.
On 8 April, Mylan proposed to acquire Perrigo for USD 205 per share in cash and stock, which Perrigo subsequently rejected on 22 April. This morning, Mylan formally launched a bid for Perrigo for USD 60 per share in cash and 2.2 Mylan ordinary shares for each ordinary Perrigo share, which was again rejected by Perrigo.
An investor who owns all three stocks said, “Mylan does not want to be acquired. I like the Mylan-Perrigo combination. Mylan is going to benefit from a few big drugs going off patent, including AstraZeneca’s Nexium.”
The first source familiar said Mylan’s bid for Perrigo would be dilutive, would raise the company’s leverage, and would not have as much synergies as a Teva-Mylan combination. Teva is claiming it can realize USD 2bn synergies through this deal.
However, an investor in Perrigo said that since Teva’s offer is 50% in stock, and with its key multiple sclerosis drug Copaxone 20mg patent expiring in September and its 40mg formulation patent being viewed to have a “relatively weak IP protection”, Mylan’s board could argue that Teva stock is unlikely to be as valuable a currency for its investors.
In addition, he said, its "stichting" poison pill bolsters Mylan’s case to remain independent.
Mylan, which redomiciled in the Netherlands after acquiring European assets of Abbott Laboratories (NYSE:ABT) in 2014, put the poison pill defense in place on 3 April. The maneuver, if exercised, allows Mylan to issue preferred shares to the Dutch foundation in the event of a hostile bid.
Under the stichting agreement, the foundation’s board of directors can exercise a call option to receive a block of preference shares amounting to up to 50% of Mylan’s voting rights if it believes Mylan is under credible threat or it receives a proposal it considers to not be in the best interests of the company.
Both sources, however, said the threat of a poison pill is not a surprise in a situation like this. “The Dutch poison pill compared to the US poison pill is less restrictive and is legally limited to a certain time period only, unlike a poison pill in the US,” the second source said.
The call option is controlled by the foundation, which is meant to represent shareholder interests. “It is not beholden to the management or the board,” the same source said. Mylan’s stichting can exercise its rights however it wants, so long as its board can explain and convince a court that such an action is reasonable, this news service reported on Friday.
The stichting is unlikely to exercise its option on price issues alone or just on the basis that the US listed generics drugmaker wants to remain independent. It considers a variety of factors, including R&D concerns and loss of talent, before doing so, the report said.
Stichtings typically cite corporate governance, unequal treatment of shareholders, or investment concerns as reasons to invoke the poison pill. Teva may try to circumvent the stichting exercising its call option by offering concessions such as retaining certain management and R&D sites and committing to friendly employment practices, the same report said.