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Mylan loses hostile bid for Perrigo

November 16, 2015
Life sciences

Mylan NV suffered defeat Friday in a landmark hostile takeover bid, dealing a blow to the generic-drug maker and casting doubt on a pharmaceutical sector that has driven a surge in global deal making.

Perrigo Co. shareholders rejected Mylan’s $26 billion takeover offer, the companies said Friday. The outcome, confirming a report by The Wall Street Journal on Thursday, surprised many analysts and investors who predicted Mylan would eke out a victory in its pursuit of Dublin-based Perrigo, which principally makes store-brand versions of cold and allergy medicines.

Perrigo shares fell 6% to $146.90 on Friday. Mylan gained 13% to $48.78, getting a boost as investors unwound bets that they had placed on the deal.

Mylan spent seven months on its ultimately unsuccessful chase. In addition to the missed opportunities in combining with Perrigo, the campaign opened Mylan up to criticism of its corporate governance, in particular its ability to use a quirk of Dutch law to stop unwanted takeovers and the limited voice it gives investors in choosing board members.

The deal’s failure also could be bad news for a mergers-and-acquisitions market that has scaled new heights. Drug companies have been key drivers of the boom, cheered on by investors applauding takeovers.

Typifying the frenzy, Mylan had been at the center of a three-way takeover fight, as it pressed the bid for Perrigo while fending off an approach from Teva Pharmaceutical Industries Ltd. But with Teva previously withdrawing its offer and Perrigo now escaping Mylan’s clutches, neither of the two deals—which had a combined value of more than $50 billion—materialized.

And it is far from guaranteed that the current pace will continue. Many drug stocks have fallen sharply as politicians and investors ramp up their scrutiny of pricing and other practices in the industry.

“There’s arguably greater diligence being performed if you’re a buyer as a result of increased scrutiny of drug pricing,” said Jim Forbes, a vice chairman at investment bank UBS Group AG. “The downward pressure on share prices across the sector broadly could potentially mute activity,” he said.

There have been $277 billion of drug-company mergers announced world-wide this year, according to Dealogic. Absent Mylan’s proposal for Perrigo, the total is now down slightly from last year’s record. Much of that activity has been driven by companies such as Mylan, Perrigo and Valeant Pharmaceuticals International Inc. Another company that has been particularly active is Allergan PLC, which Pfizer Inc. is now trying to buy in a deal that would be valued at well over $100 billion.

The vote Mylan’s offer for Perrigo was a nail-biter, according to people in both camps. Spirits were high among Mylan officials and advisers early Thursday evening after the company won the votes of more index-fund shares than it expected. These traditionally passive investors hadn’t all been expected to go along with the deal.

Hoping to quell criticism from Perrigo and win over investors, Mylan last week promised to put certain governance changes to a shareholder vote if Perrigo was successfully acquired—and that effort appeared to have borne some fruit.

The Perrigo contingent, split between New York and the company’s U.S. headquarters in Allegan, Mich., was nervous. They had received the support of most of Perrigo’s Israeli shareholders, who held about 12% of the stock, but they were spooked by the way the index votes were turning.

When a report from the national stock clearinghouse known as DTC came in at around 8 p.m. ET, however, it showed Mylan was short about 18 million shares, or 12 percentage points.

Though the gap would narrow slightly by morning, Perrigo’s advisers were fairly certain they had beaten back the tender offer—a feat that hadn’t been achieved since the 1980s, M&A veterans say. The New York group, including lawyers from Wachtell, Lipton, Rosen & Katz, retired after midnight to a nearby watering hole, where, in addition to a few drinks, they soaked up the irony of celebrating a victory for Perrigo in an Irish bar.

Meanwhile, Mylan advisers were still making last-minute phone calls into the wee hours, in a last-ditch effort to get investors who hadn’t tendered to do so. That effort fell short and Mylan was well short of the majority needed by Friday’s 8 a.m. deadline.

In the end, nearly all the big mutual funds whose votes would determine the outcome broke for Perrigo. Among the largest such funds, Mylan won support from only Vanguard Group, according to people familiar with the matter. BlackRock Inc., State Street Global Advisers, Fidelity Management & Research and others didn’t tender, the people said.

By Liz Hoffman and Dana Mattioli

Source: Wall Street Journal

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