Teva Pharmaceutical offers to buy Mylan NV for $40 bn

Israeli drug maker Teva Pharmaceutical Industries Ltd, the world's largest generic drug maker, yesterday made an unsolicited offer to buy the Netherlands-based Mylan NV for $40 billion, a move that is likely to reshape the generic drug industry.

Just two hours after the expected takeover offer was tabled, Ireland-based store-brand drug maker Perrigo Co Plc, rejected a $29-billion takeover bid, made earlier this month by Mylan. (See: Generic drug maker Mylan to buy Perrigo Co for $29 bn)

A successful Teva-Mylan merger would be the largest in the pharmaceutical industry this year, which has seen acquisitions taking place at a frenzied pace. In the first three months of this year, healthcare deals shot up to $95.3 billion, a 70-per cent increase compared to the same period a year ago, according to data from Thomson Reuters.

It would also be the largest acquisition in Teva's history, whose biggest deal has been the 2010 purchase of German generic drug maker Ratiopharm GmbH, for about $5 billion.

Teva, Israel's largest listed company, has offered Mylan shareholders $82 a share, around half in cash and half in stock, amounting to a 37.7-per cent premium to of Mylan's share price on 7 April, the day Mylan made its unsolicited bid for Perrigo.

Teva's offer is also at a 48.3-per cent premium to Mylan's stock price on 10 March, the last day of trading prior to widespread speculation of a transaction between Teva and Mylan.

Bloomberg had last week reported that Teva has been exploring a takeover offer for Mylan, and Mylan was aware of the Israeli company's interest.

Before Teva could officially table its unsolicited offer, Mylan, which normally does not respond to media speculation, was this time quick to react to Bloomberg's report, and said, ''We have studied the potential combination of Mylan and Teva for some time and we believe it is clear that such a combination is without sound industrial logic or cultural fit.''

The company is ''fully committed'' to its strategy as an independent company, as well as its bid for Perrigo,'' Mylan executive chairman, Robert Coury, said in a statement.

Coury also pointed out that a merger between Mylan and Teva could raise monopoly issues, and regulators may not approve the deal anyway, ''We believe that it is unlikely that any such combination could obtain anti-trust regulatory clearances,'' he said.

The Perrigo takeover offer by Mylan has more to do with trying to pre-empt Teva from tabling an hostile bid, analysts say.

In a letter sent to Mylan's board of directors yesterday, Erez Vigodman, CEO of Teva, said he was disappointed that Coury had ''prematurely addressed'' the merger and added that he was confident the deal between them could win regulatory approval.

Trying to push for a deal, Vigodman said, ''Our proposal is compelling for both Teva and Mylan stockholders and other stakeholders. Our proposal would provide Teva stockholders with very attractive strategic and financial benefits and Mylan stockholders with a substantial premium and immediate value for their shares, as well as the opportunity to participate in the significant upside potential of the combined company – one that would transform the global generics space and leverage it to hold a unique leadership position in the pharmaceutical industry.''

''We have long respected Mylan's business, and we 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.''

The transaction would create a company with a expanded global footprint, including leadership positions and strengthened operations, sales and R&D in attractive markets around the world.

Both companies' product offerings are highly complementary, and together, would create the broadest portfolio in the industry, with a combined pipeline of over 400 pending ANDAs and over 80 first-to-files in the US.

Teva, which is based in Israel, stands to gain a huge tax benefit if its proposed acquisition is successful. The merger would save about $2 billion a year through a mix of cost cutting and tax savings.

The proposed merger would create a generic drug giant with annual revenues of about $27 billion and a market capitalisation of about $100 billion, which means that a combination of the two companies would draw intense scrutiny from anti-trust regulators from several countries.

Teva, a generic giant in the industry, has recently lost market share to rivals like India's Sun Pharmaceutical Industries and Vigodman is keen to look for deals as the company's best-selling branded drug to treat multiple sclerosis, Copaxone, which accounted for $3.1 billion or nearly 20 per cent of Teva's $15.1 billion in revenue last.

Last week the US Food and Drugs Administration approved the first generic drug based on Copaxone, which would wipe out a third of the drug's sales by 2018, although Teva has switched its patient onto a version with longer-lasting effects.

With Mylan already exposing its mind to a merger, sealing a deal may be difficult for Teva, since Mylan can take cover under the Netherlands takeover laws, which can effectively block a hostile takeover attempt, just like Dutch telecoms company KPN did in 2013 to ward off a hostile takeover attempt by Carlos Slim's America Movil.
 
Mylan recently issued an option that lets an external foundation acquire a majority stake in the company at any time, which will block an acquirer from taking control, according to Bloomberg.

Mylan is one of the world's leading generics and specialty pharmaceutical companies and sells its products in approximately 150 countries.

It has a portfolio of more than 1,400 generic pharmaceuticals and several brand medications. It also offers a wide range of anti-retroviral therapies, and is one of the largest active pharmaceutical ingredient manufacturers.

Last year Mylan acquired Abbott Laboratories for $5.3 billion, a move that allowed it to move its corporate headquarters to the Netherlands, although it still runs the company from Canonsburg, Pennsylvania.

The New York Exchange-listed company has a market cap of around $33.5 billion and posted net profit of $929 million in 2014 on revenues of $7.6 billion.

Established in Jerusalem in 1901 by Chaim Salomon, Moshe Levin and Yitschak Elstein, Teva started out as a small wholesale drug business that distributed imported drugs. The company has since come a long way to become the biggest corporate in Israel.