On Friday August 28, Mylan Pharmaceutical's shareholders will assemble to decide the future of the company's bid to acquire Perrigo Company (NYSE:PRGO; TASE:PRGO). Mylan is trying to take over Perrigo in a $30 billion deal opposed by Perrigo's board of directors. If Mylan obtains approval from its shareholders, it will be able to submit an offer to purchase to Perrigo's shareholders, and hope that more than 50% of them accept (for gaining control of Perrigo) or over 80% (for full ownership).
While the consultant firms for institutional entities are divided in their opinions on the subject (Glass, Lewis, & Co. and Egan-Jones are recommending that Mylan shareholders approve the deal, while ISS is recommending against), Mylan already has almost 19% of the 50% it needs: Abbot and John Paulson's investment fund have announced their support for the Perrigo deal.
The question arises of how, if at all, another prominent shareholder in Mylan will vote - none other than its Israeli competitor, Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA). As part of its attempt to take over Mylan, Teva acquired 4.6% of Mylan's shares in open market transactions in May-June. Teva eventually abandoned the idea of taking over Mylan when it announced its acquisition of Allergan's generic division for $40.5 billion. Meanwhile, however, Teva still has the Mylan shares, and is entitled to vote on the Perrigo deal at the upcoming Mylan shareholders' meeting. At this stage, it is unknown whether Teva will exercise this right, and if so, how it will vote. It is clear, however, that Mylan's competitor has an interest in the deal.
"If we put emotions and the bad blood between the companies off to one side for the moment, from a business standpoint, Teva's interest is not to strengthen Mylan through consolidation and make it bigger vis-a-vis US insurers, the customers of both Teva and Mylan," says Bank of Jerusalem (TASE: JBNK) analyst Jonathan Kreizman. "On a business basis, Teva should oppose the deal in order to avoid helping Mylan become a larger and more significant competitor than it already is."
"Teva announced its opposition to the deal when it was part of the equation, within this triangle," Kreizman says. Teva announced then that if Mylan's shareholders approved the Perrigo acquisition, it would forego the acquisition of Mylan. In a retrospective analysis, Teva CEO Erez Vigodman explained how the attempt to take over Mylan came about, saying, "We analyzed the Perrigo deal, and came to the conclusion that it was a bad deal for Mylan's shareholders, and the company needs their approval. We realized that there was an opportunity here: we would offer Mylan's shareholders a better opportunity, and create an opening that would enable us to acquire Mylan - over the heads of its management and board of directors."
According to Kreizman, Teva's statements against the Mylan-Perrigo deal actually confirmed Perrigo's assertions that the synergy in this deal was only operational, not in sales. "According to Mylan, a united Mylan-Perrigo company would be able to sell more, and to raise prices to the customers. Perrigo rejects this assertion," Kreizman says. "Perrigo and Mylan have the same customers, but in different categories, because Perrigo is primarily an over the counter player. In a scenario in which Mylan obtains only control of Perrigo, not full ownership, getting synergy could take even more time."
"Globes": So perhaps Teva's cool logical interest is to support the Perrigo deal, and let Mylan get in trouble as a result.
Kreizman: "Maybe in theory, but a scenario of control will make more trouble for Perrigo than Mylan. A legal contest will not threaten Mylan, nor harm its focus."
Teva losing on Mylan shares
Kreizman adds that Mylan is not planning to improve its bid for Perrigo without negotiations between the companies, which are not taking place because of Perrigo's opposition. "To this is added Mylan's financial inability to raise the price, because increasing the cash element beyond what is planned is liable to have a negative impact on Mylan's bond rating, and put them below an investment rating. This is the millstone that is denying Mylan financial flexibility for the Perrigo deal." At Mylan's current share price, the value of the Perrigo share in a deal is $203, less than in Mylan's original offer.
In addition, the recent slide in Mylan's share price since Teva abandoned the acquisition of Mylan has cost Teva a $370 million loss on paper on its holdings in Mylan. Teva bought the shares at $69-74 a share for a total of $1.6 billion, and the current value of its holdings in $1.25 billion. Teva is expected to sell its holdings in Mylan: with the announcement of its acquisition of Allergan's generic division, Vigodman said, "We'll manage our exit from the holding in Mylan appropriately in the course of time." The question is how it will affect the fate of Teva's rival, and thereby also that of Perrigo before these shares are sold.
Published by Globes [online], Israel business news - www.globes-online.com - on August 18, 2015
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