ViewPoints: Perrigo to Mylan: 'your move'

Focus on Mylan's position at the centre of a developing M&A tug-of-war has sharpened following the rejection of its $28.9-billion offer to acquire Perrigo.

Somewhat predictably, the rejection by Perrigo management came just hours after Teva launched a bid to acquire Mylan with an opening offer valued at $40.1 billion.

Insight, Analysis & Opinion

With Mylan's own move to acquire Perrigo seen as a defensive – or potentially leveraging – gesture in light of Teva's reported interest prior to Tuesday's confirmed offer, gamesmanship looks poised to play a particularly prominent role in how this M&A chain initially evolves.

Furthermore, a very public process whereby Mylan shareholders may be forced to choose between the merits of two competing deals looks poised to play out. Teva may feel it is on the back foot already; while Mylan's share price increased in response to its $82 per share offer, in reaching $74 after the close on Tuesday, investors were appearing to suggest that challenges for the Israeli company – encompassing both antitrust considerations and the need for a higher offer – lay ahead (ViewPoints: Agree to disagree – will FTC considerations scupper a Teva-Mylan deal?).

In addition, remarked analysts at Jefferies, Perrigo does not appear to have dismissed interest in a combination with Mylan outright; the logical step would appear to be a revised offer from Mylan, one which could force the hand of both Perrigo and Teva. Furthermore, comments from Perrigo management suggest a sense of urgency to ensure Mylan's second bid is made ahead of an improved offer from Teva, remarked Jefferies analyst David Steinberg. CNBC reported later on Wednesday, that Mylan may be poised to rapidly make a second bid for Perrigo.

That said, while Teva has bluntly indicated that it has no interest in targeting Perrigo as an alternative M&A target, nor does it have the appetite to swallow a combined Mylan/Perrigo entity at some point in the future, Perrigo management appears confident that other suitors could either compete with, or take the place of, Mylan if necessary. More to the point, they appear confident that Mylan's own aspirations to avoid Teva's grasp will deliver a higher price.

Perrigo management "presented a solid case for organic growth" as a standalone player, remarked Steinberg in a note to investors, citing potential Rx-to-OTC switches, potential indication expansion for the multiple sclerosis treatment Tysabri (which Perrigo owns a royalty rate for) and OTC Nexium, which the company markets in the US under a collaboration with Pfizer. Taking its cue from both Mylan and Teva, Perrigo also offered acquisitions as an avenue for further growth.

Watching from the sidelines, Teva's rationale for returning with a higher bid will likely be driven by the transformational nature of a combined Teva/Mylan entity (which would generate generic revenues approximately three times that of second placed Actavis) and the pressure the company finds itself under to do a deal. An offer of between $100 and $110 per share may be necessary to bring Mylan to the table, say analysts at UBS, suggesting that "anything is possible in specialty pharma."

To read more ViewPoints articles, click here.

Reference Articles