Teva Can Preserve $5-a-Share Earnings Goal With Mylan: Real M&A
2015-04-17 22:27:20.917 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Tara Lachapelle
(Bloomberg) -- There’s no better deal for Teva
Pharmaceutical Industries Ltd. right now than Mylan NV.
Teva is evaluating a purchase of $34 billion Mylan in what
would be the biggest pharmaceutical acquisition so far this
year. It comes after months of analysts saying Teva should
consider such an acquisition to help offset the drop in revenue
and profit that’s expected after generic copies of its top
medicine, Copaxone, hit the market. Just Thursday, a team of two
drugmakers said they won U.S. approval to market their generic
version. Mylan is also seeking approval to sell generic
Copaxone.
Teva “should make the aggressive, wise, and value-creating
decision to move on Mylan,” Ken Cacciatore, an analyst at Cowen
Group Inc., wrote in a note before Teva’s deliberations with
Mylan were reported Friday.
With Teva’s other formulation of Copaxone also at risk of
generic competition, the company would have to find ways to
lower costs just to maintain its annual earnings of about $5 a
share while it waits for drugs still in its pipeline to
contribute to profit, Cacciatore says.
Buying Mylan would instead immediately boost profit. For
instance, an all-stock offer valuing Mylan at $90 a share --
about a 30 percent premium -- would deliver annual earnings of
about $5.60 a share next year, according to data compiled by
Bloomberg, using Cacciatore’s estimate for $2 billion of
synergies. If Teva could partially fund the transaction with
cash or debt, the earnings gain would be even larger.
‘Strong Motive’
Teva hasn’t made a formal approach yet, people with
knowledge of the matter said Friday, though Mylan is aware of
the Israeli company’s interest. Mylan, which announced plans
earlier this month to buy Perrigo Co., said in a statement that
it’s committed to the deal and isn’t interested in a sale to
Teva.
Teva’s American depositary receipts rose 2.2 percent
Friday. Mylan surged 4.5 percent to $69.82.
“Financially, there’s a very strong motive to pursue this
kind of acquisition because it would be highly accretive to
earnings,” David Steinberg, an analyst for Jefferies Group,
said in a phone interview following the report. “Strategically,
there are some pluses and some minuses.”
Pros, Cons
On the one hand, a large transaction such as Mylan gives
Teva the chance to diversify away from Copaxone. It would also
provide instant growth in earnings because of the added products
and cost savings, Steinberg said.
The downside: It doesn’t ensure long-term growth and a
higher valuation for Teva the way a purchase of a “higher-
margin, longer-duration proprietary” drug would, he said. Both
Teva and Mylan mainly make generic drugs, which aren’t as
profitable as branded medicines and in some cases have become
commoditized.
Teva shares currently trade for a lower multiple than most
of the company’s peers. The company was valued Friday at about
11 times what it earned before interest, taxes, depreciation and
amortization in the past year. The 20 biggest drugmakers
globally command an average valuation of 21 times Ebitda, and
Mylan’s ratio is 22, according to data compiled by Bloomberg.
Teva’s $3.1 billion acquisition of Auspex Pharmaceuticals
Inc. announced in March is an example of the type of purchase
that can boost value over the long run. Auspex doesn’t have any
revenue yet, but analysts were projecting its experimental
treatments that curb tics and other movement disorders could
generate more than $500 million of sales beginning in 2020, data
compiled by Bloomberg show.
Multiple Deals
Steinberg says Teva could pursue both a large takeover like
Mylan to get the immediate earnings boost and then another
smaller one similar to Auspex to help improve its stock-price
multiple over time.
Now, the question is whether Mylan would consider dropping
its plans to buy Perrigo and sell to Teva instead. If Teva can’t
make a persuasive enough offer, it would have to go hostile --
meaning it would take the bid directly to Mylan’s shareholders.
Hostile deals are rare, and it’s unclear whether Teva is willing
to go that route.
“It boils down to how badly does Teva want the assets, and
how far are they willing to go in terms of price?” Steinberg
said.
For Related News and Information:
Teva Is Said to Explore Mylan Bid to Create Generic-Drug Giant
Teva Set to Resume Deals After Investors Reward Rivals: Real M&A
Mylan Bid for Perrigo May Make Both Drugmakers Targets: Real M&A
Leaderless Teva Beckoning Mylan Merger as Stock Trails: Real M&A
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
Merger calculator: MRGC <GO>
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-04-17 22:27:20.917 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Tara Lachapelle
(Bloomberg) -- There’s no better deal for Teva
Pharmaceutical Industries Ltd. right now than Mylan NV.
Teva is evaluating a purchase of $34 billion Mylan in what
would be the biggest pharmaceutical acquisition so far this
year. It comes after months of analysts saying Teva should
consider such an acquisition to help offset the drop in revenue
and profit that’s expected after generic copies of its top
medicine, Copaxone, hit the market. Just Thursday, a team of two
drugmakers said they won U.S. approval to market their generic
version. Mylan is also seeking approval to sell generic
Copaxone.
Teva “should make the aggressive, wise, and value-creating
decision to move on Mylan,” Ken Cacciatore, an analyst at Cowen
Group Inc., wrote in a note before Teva’s deliberations with
Mylan were reported Friday.
With Teva’s other formulation of Copaxone also at risk of
generic competition, the company would have to find ways to
lower costs just to maintain its annual earnings of about $5 a
share while it waits for drugs still in its pipeline to
contribute to profit, Cacciatore says.
Buying Mylan would instead immediately boost profit. For
instance, an all-stock offer valuing Mylan at $90 a share --
about a 30 percent premium -- would deliver annual earnings of
about $5.60 a share next year, according to data compiled by
Bloomberg, using Cacciatore’s estimate for $2 billion of
synergies. If Teva could partially fund the transaction with
cash or debt, the earnings gain would be even larger.
‘Strong Motive’
Teva hasn’t made a formal approach yet, people with
knowledge of the matter said Friday, though Mylan is aware of
the Israeli company’s interest. Mylan, which announced plans
earlier this month to buy Perrigo Co., said in a statement that
it’s committed to the deal and isn’t interested in a sale to
Teva.
Teva’s American depositary receipts rose 2.2 percent
Friday. Mylan surged 4.5 percent to $69.82.
“Financially, there’s a very strong motive to pursue this
kind of acquisition because it would be highly accretive to
earnings,” David Steinberg, an analyst for Jefferies Group,
said in a phone interview following the report. “Strategically,
there are some pluses and some minuses.”
Pros, Cons
On the one hand, a large transaction such as Mylan gives
Teva the chance to diversify away from Copaxone. It would also
provide instant growth in earnings because of the added products
and cost savings, Steinberg said.
The downside: It doesn’t ensure long-term growth and a
higher valuation for Teva the way a purchase of a “higher-
margin, longer-duration proprietary” drug would, he said. Both
Teva and Mylan mainly make generic drugs, which aren’t as
profitable as branded medicines and in some cases have become
commoditized.
Teva shares currently trade for a lower multiple than most
of the company’s peers. The company was valued Friday at about
11 times what it earned before interest, taxes, depreciation and
amortization in the past year. The 20 biggest drugmakers
globally command an average valuation of 21 times Ebitda, and
Mylan’s ratio is 22, according to data compiled by Bloomberg.
Teva’s $3.1 billion acquisition of Auspex Pharmaceuticals
Inc. announced in March is an example of the type of purchase
that can boost value over the long run. Auspex doesn’t have any
revenue yet, but analysts were projecting its experimental
treatments that curb tics and other movement disorders could
generate more than $500 million of sales beginning in 2020, data
compiled by Bloomberg show.
Multiple Deals
Steinberg says Teva could pursue both a large takeover like
Mylan to get the immediate earnings boost and then another
smaller one similar to Auspex to help improve its stock-price
multiple over time.
Now, the question is whether Mylan would consider dropping
its plans to buy Perrigo and sell to Teva instead. If Teva can’t
make a persuasive enough offer, it would have to go hostile --
meaning it would take the bid directly to Mylan’s shareholders.
Hostile deals are rare, and it’s unclear whether Teva is willing
to go that route.
“It boils down to how badly does Teva want the assets, and
how far are they willing to go in terms of price?” Steinberg
said.
For Related News and Information:
Teva Is Said to Explore Mylan Bid to Create Generic-Drug Giant
Teva Set to Resume Deals After Investors Reward Rivals: Real M&A
Mylan Bid for Perrigo May Make Both Drugmakers Targets: Real M&A
Leaderless Teva Beckoning Mylan Merger as Stock Trails: Real M&A
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
Merger calculator: MRGC <GO>
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman