Tel Avia/Mumbai: Teva Pharmaceutical Industries Ltd made an unsolicited offer to buy Mylan NV for about $40.1 billion in the drug industry’s largest takeover attempt this year as it seeks to fend off competitors like Sun Pharmaceutical Industries Ltd of India.
The move came on a day that Japanese drug maker Daiichi Sankyo Co. Ltd sold its entire 9% stake in Sun Pharma for Rs.20,456 crore. Daiichi Sankyo, which received the stake after selling Ranbaxy Laboratories Ltd to Sun Pharma last year, announced the divestment in a statement without disclosing the identity of the buyers.
Sun Pharma founder and managing director Dilip Shanghvi has “neither purchased nor agreed to purchase any shares of our company in the said transaction”, a Sun Pharma spokesperson said in a text message.
Teva, the world’s biggest maker of generic medicines, offered $82 a share in cash and stock, according to a statement. That’s about 23% above Mylan’s closing price on 16 April, the day before Bloomberg News reported Teva was considering a bid. Mylan, which says it makes about one of every 11 drugs prescribed to Americans, has said it wants to stay independent and that a combination with Teva would face antitrust hurdles.
The deal would create a generics powerhouse with more than $27 billion in revenue and re-establish Teva as the unchallenged giant in the industry. The Israeli company has lost market share to Indian manufacturers such as Sun. Chief executive officer Erez Vigodman has pledged to look for deals as Teva’s best-selling product, a branded treatment for multiple sclerosis called Copaxone, faces potential competition from generics.
“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. “We still would have to consider the ramifications of antitrust regulation.”
Sun Pharma purchased Ranbaxy from Daiichi in a $3.2-billion transaction aimed at creating India’s largest drug maker and the world’s fifth-largest maker of generic, or off-patent drugs, The deal created an entity with almost Rs.30,000 crore in combined annual revenue and Rs.2.5 trillion in market value.
In March, Sun Pharma completed the acquisition of Ranbaxy after almost a year of navigating the regulatory gauntlet.
A Teva purchase of Mylan faces obstacles. Mylan took the unusual step of publicly rebuking its rival in a statement on 17 April. Mylan made an unsolicited $28.9 billion bid this month for Perrigo Co., which many saw as a trigger for Teva to act before Mylan becomes too big a target.
“We firmly believe that a combination of Teva and Mylan is a much more attractive and value-creating alternative for Mylan and its stockholders than Mylan’s proposed acquisition of Perrigo,” Vigodman wrote in a letter to Mylan executive chairman Robert J. Coury. “The combination will better address the evolving needs of patients and healthcare systems around the world.”
Mylan jumped 8.4% to $73.75 at 10:17am in New York. Teva’s American depositary receipts climbed 2.9% to $65.13, while Perrigo fell 2.3%. A purchase price of $82 a share values Mylan at about $40.1 billion based on 489.4 million shares outstanding. In Mumbai, shares of Sun Pharma lost 8.86% to close at Rs.951.60 on the BSE on a day the benchmark Sensex fell 0.75% to 27,676.04 points.
“The sharp fall in Sun Pharma stock is due to block deals that resulted in oversupply. However, the stock should recoup its losses in the next few trading sessions as fundamentals and outlook remain good,” said Abhishek Sharma, pharma analyst at IIFL Institutional Equities.
Boosting scale
A Mylan acquisition would be about four times bigger than any previous Teva purchase. The bid would add to a record period of consolidation in the pharmaceutical industry. For Teva—which sells copies of branded drugs at a discount when their patents expire—a deal would allow it to immediately boost its scale and give it access to Mylan’s global low-cost facilities in countries such as India, Brazil, Hungary and Poland.
Mylan, which is run from Canonsburg, Pennsylvania, acquired non-US operations of Abbott Laboratories this year for $5.3 billion and in the process moved its tax address to the Netherlands. Teva is unlikely to redomicile given that it receives tax benefits and investment incentives in Israel.
A tie-up between Teva and Mylan “is without sound industrial logic or cultural fit”, Coury said in a statement on 17 April. What’s more, “there would be significant overlap in the companies’ businesses and we believe that it is unlikely that any such combination could obtain antitrust regulatory clearances”.
Teva said on Tuesday it had studied the regulatory issues and is confident the deal can be consummated. The takeover offer is contingent on Mylan ending its pursuit of Perrigo.
“Pharma companies are very sophisticated on anti-trust and they know what they need to divest to get the deal through,” said Jennifer Rie, a Bloomberg Intelligence analyst on antitrust issues. “Chances are great that Teva has a very good idea what will have to be sold off,” she said.
Mylan is among the companies developing generic copies for Copaxone, which had $4.2 billion of sales last year. Novartis AG’s Sandoz unit and Momenta Pharmaceuticals Inc. last week won US approval for the first copy of the treatment.
Mylan has biosimilar medicines, injectable drugs and antiviral therapies “that Teva would certainly like to add into their business or expand on”, Kevin Kedra, an analyst at Gabelli and Co., said in an interview.
The proposed purchase of Mylan makes sense, though a Mylan acquisition of Perrigo also can be justified, Kedra said. “I’m not willing to handicap which way it’s going to go,” he said.
Earlier this month, Mylan set up a mechanism under Dutch securities law that could make a takeover tougher. The company issued an option that lets an external foundation acquire a majority stake in Mylan at any time, providing a way to block an acquirer from taking control.
Generic drug makers announced or completed more than $100 billion in deals last year, worth five times more than any year since at least 2005. Dealmaking was spurred by low interest rates and a drive by companies to relocate to more favorable tax domiciles.
Buying Mylan would restart Teva’s strategy of acquiring other generic-drug makers. The company had slowed acquisitions in that area in recent years, favouring deals for branded-drug companies such as the $3.5 billion purchase, announced last month, of Auspex Pharmaceuticals Inc. That deal, the largest since Vigodman became CEO in February 2014, will give Teva medications that curb tics and other movement disorders.
David Wainer is a Bloomberg correspondent.
