Teva Buys Stake in Mylan, As Takeover Attempt Turns Nasty

Published: Jun 05, 2015

Teva's Buys Stake in Mylan, As Takeover Attempt Turns Nasty
May 28, 2015
By Riley McDermid, Breaking News Sr. Editor

The complicated attempted buy up of Pittsburgh, Penn.-based Mylan Pharmaceuticals, Inc. by Israeli company Teva Pharmaceutical Industries Ltd. took another acrimonious turn this week, after Teva bought 1.35 percent of Mylan NV’s stock in an effort to force the company to accept its already rejected $43 billion bid.

“Acquiring shares of Mylan underscores our commitment to consummating a transaction as soon as possible,” Teva said in a statement Wednesday. Mylan did not issue a statement on the move.

Teva’s efforts so far have officially been rejected by Mylan, with the company’s increasingly testy statements about the proposed merger becoming a very public testimonial to just how acrimonious the process is becoming.

Mylan is one of the largest generics and specialty pharmaceutical companies in the world, with about 1,400 different products it markets. Teva also focuses on generics, as well as specialty drugs and active pharmaceutical ingredients. It has a portfolio of more than 1,000 molecules, employs more than 45,000 people worldwide and sells in 60 countries. Any eventual merger could mean more than $27 billion in revenue from the combined companies, although Mylan’s public rebuke of its suite April 17, in which it raised concerns about antitrust issues, continues to worry analysts.

After months of rumors about the deal, Teva finally made its bid official last month in an $82 a share in cash and stock deal that would be the biggest takeover attempt so far this year. That bid is 23 percent above Mylan’s closing price April 16. But that price was far too low for Mylan, an ironic twist considering its bid for smaller company Perrigo Company was last week rejected by Perrigo for also being an undervaluation.

“After thorough consideration, Mylan's Board unanimously determined that Teva's proposal grossly undervalues Mylan, and would require Mylan's shareholders to accept what we believe are low-quality Teva shares in exchange for their high-quality Mylan shares in a transaction that lacks industrial logic and carries significant global antitrust risk,” said Mylan in a statement Monday.

“In addition, we also believe that the proposal does not address the serious challenges of integrating two fundamentally different and conflicting cultures under a Teva Board and leadership team with a poor record of delivering sustainable shareholder value. We believe that these challenges would make it very difficult to generate value from this combination for Mylan shareholders.”

A week after that bid, in a letter to Teva’s management from Robert J. Coury, Mylan’s executive chairman, made public by Mylan, it was clear the company is becoming increasingly irritated by what it sees as an attempt to railroad it into accepting the proposal.

“Dear Erez,” wrote Coury. “First, let me say what a pleasure it was to meet you for the first time in New York last Friday. As we discussed, I was very disappointed by your decision to make your interest in Mylan public without first taking the time to speak to me or meet in person.”

“As those who know me will attest, I always am willing to discuss opportunities to create value for Mylan's shareholders and other stakeholders, and although it was after-the-fact, I was happy to grant you the opportunity to meet with me in person to hear your rationale outlined in your letter dated April 21, 2015.

During our meeting, we touched on Teva's many struggles throughout the last several years, including the approval of the first generic version of your flagship product Copaxone (despite Teva's claims that an AB-rated generic would never be approved); the persistent turnover and turmoil amongst the Teva leadership and Board and the resulting strategic confusion; Teva's consistent underperformance in comparison to the market and our industry; and your increasing need to find new sources of future growth. As I am sure you are aware, Mylan's historical compound annual growth rates (CAGR) in terms of revenues and adjusted EBITDA from 2011-2014 are more than double Teva's.

He continued:

“Erez, you told me in our meeting that Teva is different now and the challenges and cultural issues you have faced previously were now in the past. You assured me that Teva's new Board and management team had brought a new approach to the way it does business. Yet, this change was not evident in the way you approached your interest in Mylan. Through your leadership, you had the opportunity to set the right tone, and show the world that there is a new Teva. Instead, you chose to approach Mylan in a way that demonstrates that the old Teva is very much still alive, which only continues to beg questions about Teva's credibility.“

Teva did not have a responding statement Monday.

Teva lost patent protection for multiple sclerosis drug Copaxone, for which Mylan makes a generic, last July after a U.S. Federal Appeals Court found the patent protecting the drug would expire in May 2014, not September 2015.

“The attraction for Teva is that this deal would immediately allow them to grow and reduce their exposure to the impending drop in Copaxone sales,” said Sam Fazeli, an analyst at Bloomberg Intelligence in London, told Bloomberg. “We still would have to consider the ramifications of antitrust regulation.”

The speculation surrounding which big deal Pfizer Inc. is likely to do in this white hot market reached another level Friday, after Mylan Executive Chairman Robert Coury said he view Pittsburgh, Penn.-based Mylan Inc. as a good fit for Pfizer if his company is successful in buying smaller generic drugmaker Perrigo.

Pfizer has been besieged by rumors over the last two weeks that it will make a big M&A move soon, with analysts pushing it to consider buying struggling GlaxoSmithKline , which would double its portfolio and make it an instant pharma powerhouse.

But now, new contenders are throwing their hats in the ring: Coury suggested in a recent meeting with shareholders that a Mylan-Perrigo combination sweet deal for Pfizer Inc., particularly because Pfizer could move its address abroad, reaping lucrative tax benefits.

There’s been over $92.5 billion of U.S. healthcare merger activity already in 2015, as healthcare and biotech have boomed over the last 13 months. Executives at all these companies have scrambled to keep up with the 73 percent more M&A activity this year, which has already seen more than 245 deals.

Pfizer hasn’t been sitting entirely on the sidelines. It bought generic injectables firm Hospira in February for $16.8 billion and has said it is actively in the market for other smart deals. Indeed, Pfizer has done more deals than any other large pharmaceutical company. That aggressive pursuit DNA led Pfizer to take an unsuccessful run at acquiring British drugmaker AstraZeneca PLC for $119 billion—but that bid, too, fell apart, leaving Pfizer with a stack of cash and frustrated aspirations.

Pfizer Chief Executive Officer Ian Read has said in the past that he is dedicated to building out the company’s businesses via “bolt-on” acquisitions or even wholesale takeovers.

“Certainly I feel a sense of urgency on utilizing our balance sheet and our capital to do deals that are incremental, add incremental value and certainly add revenue growth in the innovative space,” said Read on a conference call with analysts in October. “We are aggressively looking at all alternatives.”

The idea that Pfizer may buy something major soon came as no surprise to analysts.

“We believe that other significant acquisitions are possible, though more likely to be aimed at [Pfizer’s innovative-pharma side of the company],” Jeffrey Holford, a biotech analyst for Jefferies Group, wrote in a report Thursday. Holder, however, believes Pfizer is better suited to yet another company, Shire , both for its Irish tax address and its complementary portfolio.

As for Coury, he has plenty on his plate right now without courting a Pfizer bid. The complicated three-way takeover waltz being conducted between Mylan, Israeli company Teva Pharmaceutical Industries Ltd. (TEVA) and Perrigo Company (PRGO) took another weird turn two weeks ago, after Mylan said that while it still views Teva’s unsolicited $40.1 billion bid as too low, it might want to acquire Teva itself eventually.

Earlier this month Mylan made an unsolicited $28.9 billion bid for Perrigo, a move which Wall Street has taken as a catalyst for Teva to pounce before Mylan becomes a larger, and much more expensive, target. But Perrigo Company rejected that offer almost immediately, saying it “substantially undervalues” Perrigo and “its future growth prospects and “is not in the best interests of Perrigo’s shareholders.”

Now, however, the landscape is changing. Coury made it clear at the same meeting that if Mylan is able to cement its deal with Perrigo, it might go shopping again—and this time to buy Teva, not be bought.

"We were just saying in a hypothetical situation, if it ever were to happen after all these other things, the only way it could happen is with us," Mylan Chief Executive Officer Heather Bresch said at the time.

The Perrigo deal would have been just the latest shopping trip for Mylan, which has been attempting to build out its brand via bolt-on acquisitions, including women’s health specialists Famy Care and a massive $5.3 billion tax inversion acquisition of Abbott Laboratories . On Feb. 2 Mylan acquired several women’s health care business units from Mumbai, India-based Famy Care Limited. The deal was handled through Mylan Laboratories Limited, Mylan’s Indian subsidiary.

Mylan does have a host of attractive assets that have been tempting to larger drugmaker, including recent clues from the U.S. Food and Drug Administration (FDA) that Mylan’s generic ANDA, which is a stand-in for Natco’s multiple sclerosis drug Copaxone. Umer Raffat, a biotech analyst at ISI Evercore, said Monday that Mylan is poised to receive approval for that drug, which would quickly be rushed to market.

“My base case continues to be that Mylan will get its Copaxone approved,” said Raffat, “and it intends to commercialize it at the time of market formation.”

Will PfizerKline Become the Next Pharma Player?
The speculation surrounding a possible bid from Pfizer Inc. for struggling GlaxoSmithKline is heating up, after one closely-watched biotech analyst said in a note last week that Pfizer buying the company would “unlock access to its balance sheet and improve its tax situation.”

Gregg Gilbert, a biotech analyst at Deutsche Bank, wrote in a note to investors “Introducing PfizerKline” that he thinks a deal would be “materially accretive” for both companies. Gilbert estimated that a bid priced at $29.86 a share, via half stock and half cash, which would push up Pfizer’s earnings per share by 10 percent to 16 percent beginning in 2016.

“We believe that the company has a sense of urgency to create value by leveraging the power of its balance sheet to do needle-moving deals,” Gilbert wrote. “Since media reports in the past have pointed to the potential for a Pfizer/GSK combination, we are revisiting that theme.”

We want to know, dear readers, if you agree? Should Glaxo continue going it alone, or might Pfizer buy it and create one of the world’s largest pharma players in history?

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