ViewPoints: Come to Papa – Perrigo encourages another Mylan bid

Perhaps it is growing recognition of a 'seller's market' or a sense that Teva is more than willing to dig in and wait in its pursuit of Mylan. Regardless, suggestion from Perrigo CEO Joseph Papa that the company is willing to negotiate a potential takeout by Mylan indicates something of a U-turn, given the speed at which three earlier bids were rejected. It also represents a necessary move if Perrigo is not to emerge from this M&A love triangle dejected and single.

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The $8.1 billion that Endo has agreed to pay for Par Pharmaceutical has showcased both the scarceness of generic/specialty assets and the premiums they can attract, argue analysts at Bloomberg Industries, particularly when that fee is compared to the $1.9 billion that private equity firm TPG paid to take Par off the market in 2012 (ViewPoints: Eat or be eaten? – Endo swallows Par Pharmaceutical in $8.1 billion deal as it switches focus back to generics).

Whether Perrigo can tempt Mylan into a significantly improved fourth offer – one which has the backing of Mylan's shareholders, who according to analysts are more favourable towards a Teva deal – is, however, another matter. Based on the cost-saving synergies outlined by Mylan in its previous bids for Perrigo, analysts at UBS are sceptical that management can put together an attractive enough offer, even with a higher cash component.

Ultimately, the success of Mylan's efforts to acquire Perrigo look poised to play an integral role in how the broader dynamics of this M&A triangle play out. Teva is, at this point, required to follow the process dictated by Mylan's anti-takeover defences, argue analysts at Bernstein; a tender offer and request of the Dutch authorities that Mylan's board will be removed if sufficient support can be gained among the company's shareholders.

Any deviation from this process is unlikely to occur until Mylan shareholders have voted against or in favour of a deal to acquire Perrigo, although an increased bid from Teva will limit the ability of Mylan management to gain majority support for its own acquisition plans. An improved offer for Perrigo, designed to ensure a friendly deal with sizeable break-up fee is Mylan's next logical move, argues Bernstein's Ronny Gal; Papa seems to be showing encouragement for such a strategy but it remains to be seen if Mylan shareholders will be placated.

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