Teva Makes $40 Billion Offer to Buy U.S. Drug Maker Mylan

Giant takeover likely to be resisted by Mylan, whose chairman already expressed doubts last week.

Teva's headquarters in Jerusalem.
Bloomberg

After weeks of speculation, Israel’s Teva Pharmaceuticals on Tuesday made a $40 billion hostile bid to buy the U.S. drug maker Mylan in a takeover that might be the biggest in a global wave of pharmaceuticals mergers and acquisitions, and solidify Teva’s status as the world’s biggest maker of generic drugs.

Teva said it was offering Mylan shareholders $82 a share, half in cash and half in its own stock for each Mylan share, which the company said equaled a 37% premium on Mylan’s share price before the latter announced it wanted to buy Perrigo, a U.S. generics maker, on April 8.

The takeover, if successful, would be the biggest ever by an Israel company. At $40 billion – and some analysts said Teva might raise its offering price – it would be equal to about 15% of the entire Israeli economy.

“Our proposal is compelling for both Teva and Mylan stockholders and other stakeholders,” Teva CEO Erez Vigodman said, saying the combined company “would transform the global generics space and leverage it to hold a unique leadership position in the pharmaceutical industry.”

Mylan shares, which had been rallying in the hours before the buyout offer became official, were trading up 8% at $73.51 in late trading in New York. Teva shares rose 2.4% to 257.10 shekels ($65.15) in Tel Aviv, and were up 2.1% at $64.59 in late New York trading.

“We have long respected Mylan’s business, and are confident that Mylan’s board of directors and stockholders will agree that our proposal represents a significantly more attractive alternative for Mylan and its stockholders than Mylan’s proposed acquisition of Perrigo,” Vigodman said.

In fact, Mylan made clear last week it would not welcome a Teva offer, saying it lacked any “industrial logic” and might raise antitrust issues. In a move that many analysts said was aimed at heading off a takeover, it made its own $28.9 billion bid to buy Perrigo, a U.S. company with an Irish headquarters and shares traded on the Tel Aviv Stock Exchange.

Mylan also adopted this month a Dutch poison-pill policy that directs a foundation to protect the company’s broad interests. Some analysts said the fact that Mylan’s share failed to approach Teva’s offering price signaled markets were skeptical that Teva would succeed.

Anticipating a fight, Vigodman said in a letter to Mylan’s chairman, Robert Coury, that was released together the offering statement, that he was prepared to meet with him to address Coury’s objections.

“We were disappointed that you prematurely addressed a potential combination in your press release issued on April 17, 2015,” Vigodman wrote.

Analysts speculated that Mylan may have a third option, if it can’t go through with the Perrigo deal to block Teva, such as finding a white knight like Pfizer Inc., Tim Chiang, an analyst at Sterne Agee CRT, told Bloomberg News.

Perrigo hasn’t yet responded to Mylan’s offer, which was unsolicited. Perrigo shares ended down 1.7% in Tel Aviv at 767.30 shekels

Like others in the global pharmaceutical industry, Teva is motivated to expand by acquisition to compensate for the expiry of patents on best-selling drugs. Only Actavis’ pending $66 billion deal for Allergan, based on figures from market research firm EvaluatePharma, might end up being bigger than the Teva-Mylan deal.

In Teva’s case, the drug that faces generic competition is its multiple sclerosis treatment Copaxone. Although Teva is known best as a generics maker itself, in fact the proprietary MS drug accounts for about half the company’s profits.

Last week, the U.S. Food and Drug Administration approved the first generic rival for Copaxone. Called Glatopa, it was developed collaboratively by Sandoz, a unit of Swiss drug maker Novartis, and Momenta Pharmaceuticals. Ironically, Mylan also has a generic version of Copaxone awaiting approval.

Copaxone, which could hit U.S. pharmacies as early as September, would endanger $4.2 billion of Teva’s $20 billion in annual revenue. Buying Mylan would give Teva something in the order of $7.72 billion, which is what the U.S. company took in last year, nearly 85% of that from the more than 1,400 generic drugs it sells. Its specialty segment sells the EpiPen allergic reactions treatment, which brought in $1.19 billion in 2014.

A tie-up wouldn’t just increase Teva’s scale, allowing it to boost profitability by cutting jobs and other costs, it would give it access to Mylan’s low-cost manufacturing facilities in India, Brazil, Hungary and Poland and increase its leverage in negotiating drug prices with insurers and other payers.

“That’s going to feed into regulators’ interests,” said Les Funtleyder, health care portfolio manager at E Squared Asset Management.

That’s particularly true in the U.S., where seven of eight prescriptions filled are for generics and employers, insurers and government health programs encourage their use to hold down costs.

Teva had been a serial acquirer of companies over the past decade, but it abandoned the strategy in more recent years as the M&A strategy did little to spur growth and the company went through a period of management turmoil. Under Vigodman, who became Teva’s CEO just over a year ago, the company has recently made it clear that it is back in the market.

Last month it agreed to buy Auspex Pharmaceuticals for $3.5 billion, a drug-development company and the largest buy for Teva since Vigodman became CEO. Teva’s last major generic purchase was of Ratiopharm GmbH in Germany, for about $5 billion in 2010.

With reporting from the Associated Press