ISS advises Mylan shareholders against Perrigo deal

Institutional Shareholder Services (ISS) on Friday recommended that Mylan investors vote against backing the company's proposed takeover of Perrigo. The proxy advisory firm cited "unreasonable uncertainties" about the bid, which has already been rejected by Perrigo's board, noting that the offer of $75 in cash and 2.3 Mylan ordinary shares per Perrigo share "could be inadequate to win over enough Perrigo shareholders to complete the acquisition."

Mylan stockholders are scheduled to vote on August 28 whether to issue new shares to fund the acquisition. "The transaction Mylan envisions may indeed be a solid business strategy," ISS commented, but "what it has asked shareholders to approve at this meeting, however, is not a compelling acquisition strategy."

Commenting on the news, Mylan executive chairman Robert Coury stated "while today's report from ISS repeatedly recognises the clear industrial logic and solid business strategy of combining Mylan and Perrigo, it misunderstands and/or underestimates, without a meaningful basis, many other key aspects of the transaction." According to Coury, ISS failed to "comprehend the potential for medium- and long-term value creation for Mylan shareholders, the compelling synergy opportunity, the potential for meaningful multiple expansion and the ability to take advantage of the continuing consolidation in our industry." He also pointed out that Abbott, Mylan's largest shareholder, has said it would vote its nearly14.5-percent stake in favour of the deal.

Mylan recently lowered the acceptance condition to close a tender offer for Ireland-based Perrigo from at least 80 percent support, as required by Irish law to take a company fully private, to just a simple majority. Perrigo CEO Joseph Papa called the move "an obvious act of desperation," while ISS suggested it raises the risk of Mylan being stuck as a large shareholder in another public company with no certain path toward complete ownership. Papa commented that the ISS report was "consistent with our view that Mylan's offer would be value destructive and that Perrigo and Mylan holders alike should not support this [deal]." He added that "we do not believe that Perrigo shareholders will tender into this transaction, whether at 80 percent or 50 percent."

Meanwhile, Mylan resisted an unsolicited bid from Teva, which recently abandoned its pursuit in favour of acquiring Allergan's global generic drugs business for about $40.5 billion. Some analysts have suggested Teva's withdrawal could give Mylan "less leverage" to purchase Perrigo, whose CEO has said it continues to have options to prevent a hostile bid, including potential acquisitions of its own. Mylan chief executive Heather Bresch also recently indicated that the drugmaker has alternatives if its Perrigo pursuit fails.

For related analysis, see ViewPoints: Come to Papa – Perrigo encourages another Mylan bid.

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