Mylan upbeat on prospects for $27bn Perrigo takeover
Mylan, the generic drugs group, is increasingly confident of pulling off the biggest hostile takeover of the year: the roughly $27bn acquisition of Perrigo, a maker of cough and cold remedies.
Ireland’s Perrigo has spurned the advances of its Netherlands-based suitor, citing a low offer and concerns over its corporate governance record, prompting Mylan to launch a tender offer for the company’s shares last week.
Based on early projections, Mylan and its advisers are confident they will be able to seize control when the tender offer expires in 60 days, according to people working on the deal.
Under Irish takeover rules, the company needs to convince investors holding 50.1 per cent of Perrigo’s stock to sell for $75 in cash and 2.3 Mylan shares. If it passes this threshold, it would be able to assume control.
Analysts say the composition of Perrigo’s shareholder register means Mylan should be able to secure this level of support. Roughly 49 per cent of Perrigo’s stock is owned either by hedge funds — most of which bought their shares in the past six months in anticipation of a deal — or large Mylan shareholders, which recently voted in favour of a combination.
Mylan’s advisers think the only way Perrigo can avoid its clutches is to solicit a rival offer from a friendly company willing to stage a “white knight” takeover, although they say such a bidder would probably have emerged by now.
A white knight’s counterbid, however, could face regulatory risks that might lead shareholders to stick with Mylan’s offer, which they have been studying for several months, said an adviser who is not directly involved in the takeover battle.
Perrigo argues there is little enthusiasm among its long-term investors for a deal that carries a relatively low premium of roughly 14 per cent, and a risk of owning stock in a company that has had a tetchy relationship with its own shareholders.
Perrigo’s advisers say a white knight bid would not necessarily have to trump Mylan’s offer — which is worth roughly $187 based on Monday’s closing prices — providing it was more attractive in other ways. It could include a higher cash component, for instance, or have a greater chance of achieving cost cuts and boosting future profitability.
Ronny Gal, an analyst at Bernstein, said: “Nobody loves the deal, but if Perrigo does not offer a decent alternative that will bring the stock to $190 as a base we think people might go with Mylan to lock in the profits in a volatile year.”
He added: “It behoves Perrigo to come in with something in the next weeks and we kind of think they are. They’ve had about six months to plan for it and they should have something in the works.”
Umer Raffat, an analyst at Evercore ISI, thinks Mylan will probably secure 50.1 per cent of Perrigo’s shares. “There are early signs that investors are tracking towards supporting a deal, although it still doesn’t seem like a slam-dunk,” he said.
However, Mr Raffat said the chances of a white knight bidder emerging at such a late stage were “very low” and that the company’s best hope of fending off Mylan was to complete its own acquisition to make it too large to swallow.
Last month, Perrigo chief executive Joe Papa said the company was pursuing its own deals.
However, even if Mylan manages to secure the support of a majority of Perrigo shareholders, its path to a fully fledged takeover is far from easy.
If Mylan convinces more than 50.1 per cent of Perrigo investors to tender their shares but falls below an 80 per cent threshold, it would technically control the company but would be unable to combine it with its own operations.
Nor could it “squeeze out” the remaining shareholders by forcing them to tender their shares, access Perrigo’s cash flows or make the roughly $800m of annual cost cuts it is planning to boost profitability.
If the number of shares tendered is below 80 per cent, Mylan could extend the tender offer for another 60 days while installing its own board of directors, which would enable it to exert greater control over the company.
But if it still failed to secure the required support, it would have to run Perrigo as a subsidiary. It has said it could delist the group at this point, meaning any remaining minority shareholders would end up owning illiquid stock.
This would be a fittingly complex conclusion to a messy three-way takeover battle that has reshaped the copycat drugs industry.
Mylan announced its offer for Perrigo shortly before it received an unsolicited $40.1bn bid from Israel’s Teva, the world’s largest generics group. Many analysts interpreted Mylan’s bid as a blocking tactic designed to thwart Teva’s advances.
Teva eventually abandoned its bid in the face of a staunch defence from Mylan — which adopted a convoluted “poison pill” designed to thwart a takeover — and instead opted to buy Allergan’s generic drugs unit for $41bn.
