Mylan Bids $205 a Share for Generic-Drug Maker Perrigo -- 5th Update

By Jonathan D. Rockoff 

Mylan NV said Wednesday it is interested in buying rival Perrigo Co. PLC for $28.9 billion in a deal that would be the latest tie-up among midsize drug companies, if the rivals can reach agreement.

Mylan said it proposed a cash-and-stock deal for $205 a Perrigo share, which represents more than a 25% premium to Perrigo's closing stock price on Friday. Perrigo reacted coolly, saying its board would meet to discuss the proposal and cautioning that "there can be no certainty that any offer will be made."

The proposal appeared to come abruptly. Mylan said the companies had held "many conversations over the years," but also said it sent Monday a letter to Perrigo CEO and Chairman Joseph Papa proposing a transaction. Mylan said it still needed to do due diligence and expressed hope Perrigo's board would embrace the approach.

"We have great respect for Perrigo's board and management team and what they have built," Mylan Executive Chairman Robert Coury said. "We look forward, in the weeks ahead, to working with them to capitalize on this tremendous opportunity and working together to create a unique leader with a one-of-a-kind profile in our industry."

In going public with its proposal, Mylan is betting it can persuade Perrigo leadership and shareholders to go along with the sizable premium it is offering. Yet the proposal could prompt Perrigo to see if other companies would make a higher offer. Even if Mylan prevails, a non-friendly approach could sour Perrigo employees on a combined company.

Non-friendly deal approaches have had a poor track record in health-care recently. Last year, Botox maker Allergan Inc. agreed to be bought by Dublin-based Actavis PLC after Valeant Pharmaceuticals International Inc. made a hostile offer, and AstraZeneca PLC successfully resisted the approaches of Pfizer Inc.

A combination of Mylan and Perrigo would create one of the world's top sellers of low-price medicines with $15.3 billion in yearly sales, and further the consolidation among midsize drug firms as companies do deals to adapt to a changing health-care marketplace and stay competitive with rivals.

Amid the frenzy, analysts have been speculating Mylan and Perrigo could be either buyers or targets.

The companies generally compete in different segments of the business. Mylan is best known for selling generic prescription drugs, though its top-selling product is the EpiPen emergency treatment for allergic reactions. Perrigo makes over-the-counter cough-and-cold remedies and infant formula for chains such as Wal-Mart Stores Inc. and Walgreens Boots Alliance Inc.'s Walgreens, which sell the products under their own names.

Each of the businesses is under pressure. Mylan has been coping with upstarts in India and other emerging markets which have been undercutting prices on its products, as well as bigger competitors such as Israel's Teva Pharmaceutical Industries Ltd. and Actavis, whose revenues have benefited from the lower tax rates of their home countries.

In response, Mylan just paid $5.3 billion for Abbott Laboratories's non-U.S. generic drugs business and reorganized in the Netherlands to lower its tax rate. Mylan reported $7.8 billion in total revenue last year.

Perrigo, meanwhile, has been struggling to keep growing despite the low margins on the private-label medicines it sells. The company got a boost a few years ago, after Johnson & Johnson recalled children's Tylenol and other popular over-the-counter medicines because of manufacturing problems, but the recalled drugs have been going back on sale.

Perrigo also embraced a tax-lowering inversion deal to help cope with the pressures, buying Ireland-based Elan Corp. for $8.6 billion in 2013. And it has been doing other deals, such as the just completed purchase of a Belgian over-the-counter drug company called Omega Pharma NV, to pick up products with higher margins than store brands.

Perrigo reported $4.1 billion in net sales for the fiscal year ended June 28, 2014, while Omega notched about $1.6 billion in annual sales.

Write to Jonathan D. Rockoff at [e-mail]

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