By Jonathan D. Rockoff And Dana Mattioli
Teva Pharmaceutical Industries Ltd. launched a $40 billion bid
for Mylan NV, bringing into focus the latest battle lines in a
fight for heft in the drug industry.
Teva, an Israeli company that says its medicines account for one
out of every eight prescriptions in the U.S., revealed the
$82-a-share offer in a statement Tuesday. The bid, which Mylan had
already indicated it would reject, came less than two weeks after
Mylan itself made a $28.9 billion offer to buy Perrigo Co. That
overture was rejected Tuesday.
In the biggest health-care deal proposed so far this year, Teva
is offering a 50/50 combination of cash and stock for Mylan. The
takeover would create the world's top-selling generic-drug company
with more than $30 billion in sales in 145 countries. Mylan and
Teva are both generic-drug companies with a popular branded
product: the EpiPen allergic-reaction treatment in the case of
Mylan and the Copaxone multiple-sclerosis drug at Teva.
The three-way tussle underscores the deal-making surge that is
under way in an industry grappling with slowing growth. At the
heart of the frenzy is a quest for new revenue amid pricing
pressure from cash-strapped governments and insurers, and increased
competition. Indeed, both EpiPen and Copaxone could face generic
competition as soon as this year, analysts say.
To shore up their earnings, companies in the industry have
closed laboratories and manufacturing plants, and laid off
scientists and other employees. They have also taken advantage of a
favorable M&A environment to buy up rivals to add to their
sales.
There have already been $175.6 billion of pharmaceutical mergers
announced globally so far this year. That puts 2015 on pace to blow
through a total of $277.8 billion of deals struck in 2014, which
ended up being the best year for mergers in the industry since
Dealogic began keeping records in 1995.
In a number of cases, there has been a cluster of activity
around a single company. Last year, Allergan Inc. was at the center
of a multipronged takeover battle that ended when the Botox maker
agreed to be bought by Actavis PLC for $66 billion. And this year
Salix Pharmaceuticals Ltd. was the focus of a takeover battle that
ended when Valeant Pharmaceuticals International Inc. agreed to pay
more than $11 billion for the stomach-drug maker.
Teva said it and Mylan are a natural fit and that the scale of
the combined company would help it better manage costs in the
low-margin generics business. It added that the tie-up would
bolster its ability to develop low-price knockoffs of biotech
drugs, a new market that offers the potential for significant
growth.
Teva said the combination could lead to cost and tax savings of
about $2 billion annually. It didn't explain how it would achieve
the tax savings, though both companies are based in lower-tax
jurisdictions than the U.S. after Mylan in February completed an
acquisition that allowed the Pennsylvania company to incorporate in
the Netherlands. That deal was a so-called tax inversion, a type of
takeover that become popular among drug companies until the U.S.
Treasury clamped down on them last year.
Pulling off the deal won't be easy, in part because Mylan has
already made its strong opposition clear. After The Wall Street
Journal first reported last week that Teva was considering a bid,
Mylan issued a statement saying a combination would lack "sound
industrial logic or cultural fit" and be unlikely to win antitrust
approval.
Mylan, which added then that it would "carefully consider" any
offer nonetheless, made no further comment on the bid Tuesday.
In a letter to Mylan Executive Chairman Robert Coury released
Tuesday, Teva Chief Executive Erez Vigodman sought to address those
concerns. He indicated Teva could clear any antitrust obstacles by
disposing of overlapping products.
The companies are fierce rivals, with Teva stock frequently
referred to as "toilet paper" inside Mylan, according to people
familiar with the matter. In a sign of the frosty relations between
the companies, Teva only advised Mylan of its bid moments before
making it public, according to people familiar with the matter.
Teva launched the bid now out of fear that if it allowed Mylan
to swallow Perrigo, the resulting company's increased size and
complexity would put it out of reach, a person familiar with the
matter said.
As speculation grew in recent weeks that Teva might bid for the
company, Mylan in early April took steps that would make it ever
harder for the Israeli company to prevail. They include creating a
legal vehicle in the Netherlands called a "stichting" that can be
used to prevent an unwanted takeover.
It then disclosed a bid for Perrigo on April 8. Perrigo on
Tuesday afternoon rejected the offer, saying it "substantially
undervalues" the company.
Mylan's bid for the Irish company kicked off speculation among
deal advisers and analysts that both companies could become
takeover targets.
Shareholders of both Teva and Mylan appeared to cheer the news
Tuesday, with Mylan stock rising 8.9% to $74.07 and Teva up 1.4% to
$64.16. Still, the fact that Mylan stock is trading well below
Teva's bid shows investors are mindful of the difficulty the
Israeli company will have pulling off the deal.
And some of Teva's own shareholders oppose the combination.
"I don't like this deal," said Benny Landa, a Teva shareholder
who is close to some of the company's founding family members. Mr.
Landa said Teva would be better off pursuing smaller deals for
companies that are developing promising drugs.
Hedge fund Paulson & Co. and others lobbied Teva to do a
deal for Mylan, according to people familiar with the matter.
Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com and
Dana Mattioli at dana.mattioli@wsj.com
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