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Teva makes US$40.1 billion unsolicited takeover bid for Mylan

Teva Pharmaceutical Industries made an unsolicited offer to buy Mylan for about US$40.1 billion, in the drug industry's largest takeover attempt this year.

[TEL AVIV] Teva Pharmaceutical Industries made an unsolicited offer to buy Mylan for about US$40.1 billion, in the drug industry's largest takeover attempt this year.

Teva, the world's biggest maker of generic medicines, offered US$82 a share in cash and stock, according to a statement. That's about 23 per cent above Mylan's closing price April 16, 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 US$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 Pharmaceutical Industries Ltd. 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."

A Teva purchase of Mylan faces obstacles. Mylan took the unusual step of publicly rebuking its rival in a statement April 17. Mylan made an unsolicited US$28.9 billion bid this month for Perrigo, which many saw as a trigger for Teva to act before Mylan becomes too big a target.

Perrigo rejected Mylan's proposal Tuesday, saying the offer substantially undervalued the company. That may diminish Mylan's options.

"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," Mr 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 8.9 per cent to US$74.07 at the close in New York. Teva's American depositary receipts climbed 1.4 per cent to US$64.16, while Perrigo fell 2.7 per cent. A purchase price of US$82 a share values Mylan at about US$40.1 billion based on 489.4 million shares outstanding.

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 US$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," Mr Coury said in a statement on April 17. 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 antitrust 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 US$4.2 billion of sales last year. Novartis AG's Sandoz unit and Momenta Pharmaceuticals 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 & Co, said in an interview.

The proposed purchase of Mylan makes sense, though a Mylan acquisition of Perrigo also can be justified, Mr 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 US$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. In last year's largest deal, Actavis in November agreed to buy Botox maker Allergan for about US$65 billion.

Buying Mylan would restart Teva's strategy of acquiring other generic-drug makers. The company had slowed acquisitions in that area in recent years, favoring deals for branded-drug companies such as the US$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.

The company's last major generic purchase was of Ratiopharm in Germany, for about US$5 billion in 2010.

Teva, founded in 1901, was established in Jerusalem to distribute imported medicine on camels and donkeys. The company's growth was spurred by the Hatch-Waxman Act, a 1984 US law to encourage the rapid development of generic drugs and thus reduce medicine prices.

It then used revenue from branded Copaxone to fund its acquisitive streak. Copaxone, discovered in the 1990s in research out of Israel's Weizmann Institute of Science, is still the best-selling multiple sclerosis treatment.

Barclays and Greenhill & Co are advising Teva on the offer.


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