Is Mylan Delusional About Perrigo Prospects?
This article was originally published in Scrip
Mylan may have a plan in place to integrate Perrigo into its existing business, but analysts and shareholders – let alone Perrigo management – are still not on board with the acquisition. The confusion means that it's still anybody's guess about what will happen on the tender offer deadline on Nov. 13.
Mylan hosted an uneventful third quarter earnings call on Oct. 30 – the only points of interest rested squarely with its dialogue around its ongoing pursuit of generic drugmaker Perrigo, where Mylan executives retained their confidence that the transaction will go through and talked about plans to integrate Perrigo into the existing business.
"We are capable, confident, and ready to run the Perrigo business as soon as we close and have been putting in place a comprehensive readiness plan to allow us to do so," said Mylan President Rajiv Malik during the call.
"A critical priority for us will be to get to know the key talents at Perrigo and implement retention programs. We very much hope to make this a collaborative effort and will seek to retain as many of Perrigo leaders as possible. Within the first 60 days, we will have developed a clear road map for integration of our businesses, a plan for realization, as well as a defined operating model," he added.
For example, Malik said the company's global supply chain operations are already located in Ireland, where Perrigo recently announced it was planning to consolidate more of its operations. Perrigo announced Oct. 23 that it would move several operations to its base in Ireland as part of a cost-cutting measure. The generic drugmaker expects to realize $105m in operational and tax benefits from the move.
Mylan has already established a permanent integration office and has placed Ranjan Chaudhuri as the global commercial leader of the OTC business – the business that would handle the majority of the Perrigo assets. "These leaders are prepared and fully capable of managing these functions in the event that Perrigo leaders in those areas chose to depart upon closing," Malik said.
The Opposition
While Mylan may be acting like this acquisition has already gone through, the rest of the world seems a bit more skeptical. The company has until Nov. 13 to convince at least 50% of Perrigo shareholders to tender their shares – they will get $75 in cash and 2/3 of a Mylan share per Perrigo share.
Under Irish takeover law, Perrigo management is now in a quiet period and can no longer announce material moves, like any M&A, unless a white knight comes forward. Yet, Perrigo management – particularly president and CEO Joe Papa has been particularly vocal about his disdain for the deal and his dislike of Mylan's business.
"Mylan again failed to provide a reason for Perrigo shareholders to accept Mylan’s grossly inadequate offer to acquire Perrigo – an offer that has become even more inadequate over time," said Papa in a statement after the Oct. 30 call. Mylan is avoiding the real measures that shareholders look to, such as actual takeover premiums and Perrigo’s durable high trading multiple, and instead invents new concepts – such as ‘hypothetical’ share prices and ’accretion’ to target shareholders."
But Papa hasn't been the only one who thinks the Mylan acquisition doesn't make sense and is unlikely to happen; analysts agree.
"We continue to believe PRGO is better off as a standalone company," wrote Guggenheim analyst Louise Chen in an Oct. 30 note.
Meanwhile, Bernstein analyst Ronny Gal questioned Mylan's inaction concerning criticism about its corporate governance. "Mylan is 'open to discuss' governance changes with PRGO board as well as its shareholders. However, would not go beyond 'open to discussion' and commit to implementing governance changes. Mylan noted it thinks of governance question in the context of the Perrigo deal, not as a problem with its own business. We have a different perspective," he wrote in an Oct. 30 note.
Mylan shares have been all over the place since it launched its bid for Perrigo in April. The stock is currently trading at about $45 per share and is well off its 52-week high of $76 apiece.