Mylan shareholders vote to back hostile Perrigo takeover

29 Aug 2015 | Author: | No comments yet »

Dealpolitik: Mylan-Perrigo Fight Destined to Be a Nasty One.

NEW YORK – Mylan’s shareholders approved the company’s hostile pursuit of Perrigo and the generic drug maker hopes to push ahead with a formal offer soon. Mylan NV shareholders voted Friday in favor of the company’s $35.6 billion bid for Perrigo Co., handing the generic-drug maker ammunition for an attempted hostile takeover of its rival.With shareholders of Mylan NV approving its $36 billion hostile takeover bid for Dublin-based Perrigo Co. on Friday, the battle between the two companies will quickly move to the hand-to-hand combat stage.Deals of the Day is your one-stop-shop for the morning’s biggest news from the finance beat, including M&A, IPOs, banks, hedge funds and private equity.

Mylan said that it had the support from investors representing a majority of shares, passing the threshold it needed to go directly to Perrigo shareholders. Perrigo is not permitted structural defenses like poison pills, which in the U.S. can be used to buy time and potentially even block a bid shareholders want to accept. The proposed deal—which has been swiftly opposed by Perrigo at every turn—was approved by more than two-thirds of shareholders at a general meeting. [WSJ] Micron bid twist. Perrigo, which makes over-the-counter and generic medicines, has consistently rejected the offer as too low and says that it will do better on its own. The chairman of China’s Tsinghua Unigroup reportedly traveled to the United States this week to meet with board members of Micron Technology and try to revive a politically fraught takeover bid of the U.S. chipmaker. [Reuters] Innovation Group talks.

That Mylan investors backed the deal does not necessarily mean that enough Perrigo shareholders will do so, said Erik Gordon, a business professor at the University of Michigan. “The Perrigo acquisition makes sense for Mylan. U.S. private equity firm Carlyle is in advanced talks about buying Innovation Group for 40 pence a share in cash, valuing its equity at almost 500 million pounds ($769 million). [Reuters] Big IPO looms in China. Teva Pharmaceutical Industries was also pursuing Mylan, but is now buying the generics business of Allergan for $40.5 billion in a move to expand its position in the generics market. China Huarong Asset Management Co. won approval late Thursday for a Hong Kong initial public offering of up to $3 billion, in what could be one of the region’s biggest listings this year. [WSJ] Icahn’s latest move.

Generic drugs are less expensive than name-brand drugs, but the prices of some generics are increasing because of a lack of competition or shortages brought on by manufacturing problems. Mylan, which recently moved its legal home to the Netherlands after an acquisition, made use of Dutch corporate law to strengthen its defenses against a deal with Teva. Activist investor Carl Icahn bought a big stake in Freeport-McMoRan Inc., adding pressure to the beleaguered miner hours after it disclosed a major retrenchment in response to the global commodity rout and an ill-timed pair of acquisitions two years ago. [WSJ] Dole executives lose suit.

Second, although governance issues relating to the bidder don’t usually play a big role in a takeover, this deal looks like it will be different on that score. That means Mylan’s unusual governance structure–related to the fact that it’s based in the Netherlands–could make the company vulnerable to attack. A federal judge on Thursday said Caesars Entertainment Corp. and a group of bondholders should prepare for a trial in a lawsuit over Caesars’ guarantees of billions of dollars of its operating unit’s debt. [WSJ] Proxy advisory firm ISS had advised Mylan investors to vote against the deal, while two of ISS’s competitors recommended the deal for Mylan shareholders. Two large Mylan shareholders representing about 20 per cent of the shares, Abbott Laboratories Inc and Paulson & Co, backed Mylan. “We continue to think that a deal here is far from likely though largely priced into both stocks,” RBC Capital Markets analyst Randall Stanicky said in a research note.

Shareholders can vote “no” on the board’s director nominees, but that action (or director removal) takes a two-thirds vote, and even then the board selects replacements. That could lead to Perrigo claiming that Robert Coury, Mylan’s executive chairman, is effectively chairman for life–or at least for as long has he has the support of his current board. Add to that the board’s obligation to consider “stakeholders” other than shareholders in making decisions, and Mylan could have a big bulls-eye painted on its governance. This would likely apply pressure to shareholders who might not otherwise want to tender their shares because once they learn Perrigo will be controlled by Mylan they may not want to remain as minority holders. What is remarkable about this intention is that even though Mylan would be able to elect the entire board, those directors would have duties to all shareholders–including those that could be harmed by a decision to delist.

There have been $274.8 billion of deals in the pharmaceutical sector world-wide so far this year, by far the biggest total on record, according to Dealogic. This is also an important issue because Perrigo has already signaled one of its campaign themes will be that without full ownership, Mylan will have a hard time getting all the synergies it targets. Mylan has been challenged by competitors undercutting prices in emerging markets, on the one hand, and by larger rivals such as Teva and Allergan, which have historically benefited from lower tax rates, on the other. Mylan on Tuesday called some of Perrigo’s statements misleading and published a statement by the Irish Takeover Panel that said certain of its comments “may mislead shareholders and the market or may create uncertainty.” Meanwhile, Perrigo on Tuesday said that the low tender threshold and intention to delist show “disregard for shareholders,” and called it “an unacceptable way to treat shareholders and run any company.” The attack on Mylan’s governance seems to be getting some traction.

In recommending that Mylan shareholders turn down the Perrigo deal, proxy adviser Institutional Shareholder Services referred to a “corporate governance discount” in the price of Mylan stock and indicated it arose “due to investors’ more dim view of its corporate governance.” The attacks are likely to get nastier from here and ramp up over the limited term of Mylan’s bid.

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