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 The offer followed weeks of speculation that Israel-based Teva, the
world's largest generic drugmaker, would soon target Mylan. Shares
of Mylan traded below the offer price of $82 in cash and stock,
evidence of investor skepticism that Teva can win over the company,
which has set up a defense that includes a poison pill.
Analysts agreed that Teva would need to sweeten its bid to the
$90-per-share range. S&P Capital IQ analyst Jeffrey Loo said a
viable offer would be $92, about 22 times Mylan's 2015 expected
earnings.
"If they raise their bid, they will have more Mylan shareholders
pressuring management to come to the table," Loo said. He suggested
Teva would need to increase the cash component of the offer, which
is now at 50 percent.
Mylan has yet to respond publicly. The company is pursuing an
unsolicited, $29 billion bid for Perrigo Co Plc, a major producer of
over-the-counter medicines, in an apparent attempt to stave off
interest from Teva.
Perrigo has not yet responded to that offer, saying it would consult
its board, but a source familiar with the matter said the company
was set to reject Mylan's bid as soon as this week.
Mylan Executive Chairman Robert Coury said last week that the
company had studied the potential for a deal with Teva and concluded
that such a combination "is without sound industrial logic or
cultural fit," and would attract antitrust scrutiny.
Teva said its offer should be more attractive to Mylan shareholders
than the proposed purchase of Perrigo, representing a 48 percent
premium to the company's share price before speculation of a deal
surfaced on March 10.
Pressure has been growing on Teva for new revenue sources as
multiple sclerosis drug Copaxone starts to face generic competition
this year.
Teva said the purchase would help it to expand its offering of
harder-to-produce medical products, such as soft-gel caps, topical
and inhalant technologies and injectables, and increase its
portfolio of specialty pharmaceuticals.
The acquisition would create an entity with more than $30 billion in
annual revenue, add to earnings in the first year and eventually
generate $2 billion in annual savings, Teva said. It expects that a
transaction could close by the end of 2015 and pledged a quick
response, including selling assets if necessary, to ease any
regulatory concerns.
Mylan shares were up 8.9 percent at $74.12 in afternoon Nasdaq
trading, while Teva rose 2.0 percent to $64.55 on the New York Stock
Exchange. Perrigo fell 2.2 percent to $193.79.
HEALTHCARE DEAL FRENZY
A Teva-Mylan deal would be the second-largest healthcare transaction
in the last 12 months, following generic drugmaker Actavis Plc's $66
billion purchase of Botox maker Allergan. The wave of consolidation
has also included AbbVie Inc's proposed purchase of Pharmacyclics
and Valeant Pharmaceuticals' deal for Salix.
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Generic drugmakers are looking to get bigger and gain access to
product lines with higher profit margins, while traditional
pharmaceutical companies have tried to add novel treatments for
cancer and rare diseases.
Teva Chief Executive Officer Erez Vigodman said the companies should
meet to address Mylan's concerns. In a letter to Coury, he said a
deal would create "an organization with the scale and reach to excel
in the current environment, which I know you appreciate."
A turnaround specialist, Vigodman joined Teva last year, tasked with
cutting costs and improving profits under pressure from rising
competition. In February, he said the company was ready to return to
making acquisitions. A Mylan purchase would be the largest deal in
Israeli history.
Mylan recently moved its headquarters from the United States to the
Netherlands, where corporate taxes are lower and where it could take
advantage of Dutch anti-takeover provisions that can dilute shares
by granting a call option to a foundation set up for this purpose.
In early April, Mylan said it had entered into such a call option
agreement.
Sanford Bernstein analyst Aaron Gal said in a research note that
Perrigo was likely to reject Mylan but might then start negotiating
with the company. That would push Mylan to campaign to win
shareholder support for its purchase.
At the same time, Teva will start its own campaign to publicly
convince Mylan shareholders of the merits of its offer. Mylan is
likely to demand a higher price, shared management and maybe some
employee job protection, he said.
Barclays and Greenhill & Co Inc are advising Teva, whose lawyers are
Kirkland & Ellis LLP, Tulchinsky Stern Marciano Cohen Levitski & Co,
De Brauw Blackstone Westbroek N.V. and Loyens & Loeff N.V.
(Additional reporting by Steven Scheer in Jerusalem)
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