Mylan’s surprise bid last week for Perrigo may be just the first salvo in what could turn into a lengthy and protracted merger and acquisition fight among generic drug makers, including Teva Pharmaceuticals.
Mylan on Wednesday offered to buy Perrigo, a U.S. company that trades on the Tel Aviv Stock Exchange and has extensive operations in Israel, for $205 a share in cash and stock, or $29 billion in total. That represented more than a 25% premium over Perrigo’s share price on the eve of the offer.
News of the offer came after the Tel Aviv Stock Exchange closed on Wednesday for the long Passover holiday weekend, but on Sunday Perrigo shares soared 22% to close at 793 shekels ($198.61).
And that may just be the beginning, said Idan Azoulay, head of investments at the investment house Epsilon, noting that Perrgio has termed the offer an unsolicited bid. “The tender offer for Perrigo is likely to influence the market for quite some time because we’re talking about a hostile takeover offer, which will probably draw other companies into a bitter contest for the company,” Azoulay said.
Analysts speculated that the Mylan bid for Perrigo was, in fact, a defensive measure, probably taken at the last minute, aimed at preventing Teva from mounting a bid for Mylan. The markets have been aflutter with speculation that the Israeli company would do that, although Teva itself has given no indication.
One signal of Mylan’s intentions came early the week before its Perrogo bid, when the company finalized a so-called poison pill measure that would allow it to fend off a hostile takeover offer.
Although Mylan is an American company, it is domiciled for legal purposes in the Netherlands and used a provision in of Dutch law allowing it to sell shares to a foundation and dilute ownership of existing shareholders. That could potentially block an unsolicited takeover offer, analysts say.
Mylan’s Perrigo move could lead to one of two outcomes, say analysts.
In the first, Teva makes a bid for Mylan as it planned, undercutting the latter’s attempting takeover of Perrigo. That’s what Stifel Nicolaus analyst Annabel Samimy says looked likely.
“People think that this is going to flush out a Teva bid for Mylan,” she told Reuters. “If that’s the case, then this bid for Perrigo is not going to go through.”
Another possibility is that Teva would pursue Perrigo. “What will be interesting to see is if we end up in a bidding war,” said Morningstar analyst Michael Waterhouse, who suggested that in addition to Teva serial acquirer Valeant Pharmaceuticals International as potential rival bidders for Perrigo.
Samimy mentioned Novartis’s Sandoz generic unit as a possible Perrigo bidder, saying: “They’ve said in the past that they need to get bigger or get out.”
Even though for now it has still not joined the battle, Teva shares closed 3.8% higher at 263 shekels in Tel Aviv Sunday.
Citigroup analyst Liav Abraham, who reiterated her Buy rating and $70 price target on Teva following the Perrigo news, said she hoped that Mylan’s bid would deter Teva from trying to take over Mylan, whose nearly $27 billion market capitalization would be a big and complicated company for Teva to swallow, especially if Mylan puts up a fight.
“We believe that a combination of smaller branded and generic transactions could provide Teva with greater portfolio diversification and a more attractive longer term growth profile,” she wrote in a note to investors.
While Perrigo lifted shares on the TASE to record highs on Sunday and promised to carry it higher in coming weeks, analysts said a takeover would be bad for the TASE in the long run. “In the short run this is good for the market, but in the long run it means losing a company from the local bourse, which could have a very negative effect,” said Epsilon’s Azoulay.
With a market capitalization of 279 billion shekels, Perrigo has a 9.8% weighting in the TASE’s TA-25 index of blue chip stocks, second only to Teva. At a time when the bourse is struggling to retain attractive companies, that would mark a major loss.
Reuters contributed to this report.
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