By Shayndi Raice And Liz Hoffman
In May, Mylan NV's executive team met with investors in a
Manhattan conference room. As shareholders complained about the
drug maker's resistance to a $40 billion takeover proposal from
Teva Pharmaceutical Industries Ltd., Executive Chairman Robert
Coury leaned across the table.
"This is a stakeholder company, not a shareholder company," he
said, in language laced with expletives, according to multiple
attendees, meaning his constituents went beyond investors.
The remarks, while not entirely out of character for the
occasionally foul-mouthed Mr. Coury, were telling. When Mylan moved
its legal home in February from Pennsylvania to the
Netherlands--part of the wave of tax-trimming "inversion"
transactions that swept American business last year--it gained not
just tax savings, but a Dutch corporate rule book that gives
companies more levers to resist takeovers.
The consequences of that move became clear this weekend.
Frustrated in its monthslong pursuit of Mylan, Teva pivoted, saying
Monday it had agreed to buy Allergan PLC's generic-drugs business
for $40.5 billion and abandoning its pursuit of Mylan. The twist
left Mylan shareholders reeling, sending the stock down more than
14% Monday afternoon.
The outcome shows a consequence of the recent inversion craze,
now becoming clearer as companies lay down roots in new
jurisdictions.
As these companies begin to pursue deals, and get pursued, rules
of the game are shifting for shareholders and management.
At some companies, like Mylan, shareholders now have less
leverage with management thanks to their new foreign home, while at
others, like Perrigo Co., which redomiciled to Ireland in 2013,
shareholders are more empowered and companies have fewer tools with
which to resist takeovers.
"Often participants look to inversions and see only the tax
upsides," said Peter Lyons, global co-head of the M&A practice
at law firm Freshfields Bruckhaus Deringer LLP. "Many times there's
more to the analysis, whether it be different rules on corporate
governance or differences in the approach to [future] transactions.
They would be well-served to consider all of these factors."
A Mylan spokesman said, "Mylan certainly has always considered
the interests of shareholders. But a core principle at Mylan is
that shareholders benefit from a well-run business, and to run a
business well, you need to focus on all of the stakeholders we
touch on a daily basis, including customers, patients, employees,
suppliers, creditors and communities."
Mylan has also maintained its stand-alone strategy trumped a
takeover by Teva.
The Netherlands is a stark example of how the rules can change.
As U.S. companies moved to invert in recent years--buying a foreign
entity and then switching domiciles-- most headed for Ireland or
the U.K., where lower tax rates combined with language and cultural
fits.
But Dutch policy makers have spent the past decade touting the
benefits of Dutch law to global corporations as part of an effort
to turn the Netherlands into a management-friendly bastion.
Advocates of the Dutch system say it lets boards invest in the
business and plan for the long term, while critics say the balance
tilts too far in favor of management over shareholders.
Rients Abma, executive director of Eumedion, an organization
representing Dutch institutional investors, said he worries such
moves "will give the impression among foreign shareholders that
[the Netherlands] is not a shareholder-friendly environment and
that can have negative consequences for all companies incorporated
in the Netherlands."
Mylan set up a Dutch foundation, known as a stichting, which is
an antitakeover defense comparable to a U.S.-style poison pill. The
foundation had the right to receive preferred shares that allow it
to block any deal, outvoting other shareholders. The board of
Mylan's stichting triggered its special voting rights last week,
saying it would oppose a takeover by Teva.
Mylan also instituted a rule that says only the current
chairman--today, Mr. Coury--can appoint new directors, even in the
event all board members are ousted by shareholders. That means
shareholders cannot replace the board, a powerful tool in U.S.
takeover fights. Corporate-law experts said this provision would be
highly unlikely to survive a legal challenge in the U.S.
That nomination right was spelled out in Mylan's disclosures to
shareholders about the deal, which was approved by 97% of votes
cast. Yet some investors are disenchanted with the reality: A
lawsuit filed on behalf of Mylan shareholders in June in
Pennsylvania, Mylan's U.S. headquarters and until February its
legal home, alleges the company didn't give shareholders an
adequate say over the creation of the stichting.
Cable firm Altice SA is proposing its shareholders vote in
August to switch its corporate domicile from Luxembourg to the
Netherlands, a move that will allow it to institute a dual-class
share structure. Such a structure, which is generally barred in
Luxembourg, would give the company's chairman, Patrick Drahi,
approximately 92% of the company's voting power while owning 58.5%
of the company.
Similarly, Italy's Agnelli family was able to tighten its grip
on Fiat Chrysler when it switched its domicile to the Netherlands
last year. The move allowed the family to increase its voting power
to around 46% on a financial stake of about 30%.
As for Perrigo, currently facing a hostile takeover attempt from
Mylan, the maker of private-label drugs redomiciled to Ireland
through a 2013 merger and, in doing so, surrendered a bevy of
takeover defenses that could now come in handy. Ireland has no
poison pills and doesn't allow boards to take any actions, like
large acquisitions or restructurings, to thwart a takeover bid.
That is good news for Perrigo's shareholders eager for a quick
premium, but leaves its board with fewer options.
Perrigo shares rose 3.8% to $193.60 in Monday afternoon
trading.
Write to Shayndi Raice at shayndi.raice@wsj.com and Liz Hoffman
at liz.hoffman@wsj.com
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