Teva-Mylan-Perrigo dance gets more complicated

Mylan suggests it might turn the tables on Teva and scuttlebutt begins that Abbott might be interested in bidding for Mylan

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The merger and acquisition (M&A) scene was already pretty interesting with the energy between Potters bar, England-based Mylan N.V. trying to acquire Irish company Perrigo Company plc and Israeli company Teva Pharmaceutical Industries Ltd., in turn, making a unsolicited bid for Mylan. In a flurry of unrequited love befitting a soap opera, Perrigo has repeatedly turned down Mylan and Mylan has done the same to Teva. And the words used in some of those rejections have been less than kind.
For more on how all that came about and has been playing out lately, you can check out the “Two’s company; three’s a crowd?” article from our May 2015 issue. But now things have gotten more intriguing with Mylan apparently considering acquiring the suitor it has been rebuffing.
After putting out a statement that it wouldn’t consider an offer from Teva for anything less than $100 per share—a price analysts think is something Teva wouldn’t consider offering—Mylan Executive Chairman Robert Coury reportedly told investors privately this week (according to Reuters) that his company has explored the possibility of a union with Teva. Moreover, sources told Reuters that if an M&A deal were to be sealed with Teva, it would be after the closing of an M&A deal with Perrigo and it would only happen if Mylan was the buyer.
As Reuters wrote, “Mylan Chief Executive Officer Heather Bresch explained to Reuters in an interview the logic behind Coury's comments. Mylan has a better management team and integrated global supply chain, as well as a superior track record with acquisitions. That would make it more capable than Teva to lead the potential combined company, she said.”
It’s all highly hypothetical, of course, and going even more into that realm of speculation is the vague suggestion that Abbott Laboratories could even be a player in a possible acquisition of Mylan. As notes in a May 11 article, Abbott is now the largest stakeholder in Mylan after selling its generic drugs unit to the company in February 2014, and has been making noise about using that money, or some of it, for M&As of its own. The sale of its generic drugs unit to Mylan gave it about 110 million shares of Mylan stock, and the rise in stock price with the Teva and Perrigo scuttlebutt means that what had been an equity position of $5 billion in Mylan is “well north of $7 billion,” as Abbott’s CEO Miles White said on an earnings call recently.
“I am watching the great theater out there that is surrounding Mylan,” White told investors during a May 10 conference call. “I’m happy that we’ve been patient. It is clearly accruing value to us.”
Of course, none of that means that Abbott would make a play for Mylan, but with everything else that’s been happening lately, it’s not beyond the scope of possibility.
There are analysts more skeptical than others about any of this M&A action bearing fruit, among them BMO Capital Market analyst David Maris, who had wrote in March in an investor note that talk of a Teva acquisition of Mylan is people “just putting out fluff.”
As wrote, “Maris’ skepticism is related to Mylan recently acquiring some of Abbott Laboratories’ sagging European generics as part of a tax inversion deal, pointing out that if Teva bought Mylan, the Israeli company would have two choices: Mylan to Israel, which has major tax disadvantages, or compete an inversion and change its domicile to the Netherlands, which would violate Teva’s bylaws.”
Analysts at Leerink Partners say in conversations with Mylan’s management team, those officials remain bullish about a Mylan-Perrigo combination, but also said the company has other deals in mind of Perrigo asks too high a price or doesn’t ask for one at all and simply continues to reject Mylan outright.
Leerink also noted that its analysts were struck by “the extent of how passionate the Chairman is to prevent a Teva-Mylan combination.”
On balance, Leerink says, Mylan is “clearly prepared to use every possible obstacle to fend off a Teva bid or position Mylan for a better price. We believe (1) investor sentiment for Mylan-Perrigo is waning; (2) Dutch case law Re: poison pill is on Mylan's side, but a failed Perrigo shareholder vote and a higher Teva bid could create pressure point over time … While it's too early to predict an outcome, we still like the risk/reward on Mylan here.”

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