"Even at $100 per share Teva's Mylan bid worthwhile"

Erez Vigodman
Erez Vigodman

Julius Baer analyst Lilian Montero insists it's illogical for Mylan to remain independent.

"Mylan Laboratories is a good acquisition target for Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), and in my opinion, Teva's shareholders will welcome it, but it also depends on the price Teva has to pay for Mylan shares," says Lilian Montero, an analyst for Swiss investment bank Julius Baer. Montero, who covers the Teva and Mylan shares, believes that Teva management "is taking interesting measures, and with the acquisition of Mylan, the company will be in a better position."

Teva is seeking to acquire Mylan in a deal totaling over $40 billion ($82 per Mylan share). Mylan, which is opposing the takeover, wants to acquire Perrigo Company (NYSE:PRGO; TASE:PRGO) in a deal worth over $30 billion, but Perrigo also does not want to be acquired. According to Montero, Teva's proposed acquisition of Mylan will add to its profit even at $100 per Mylan share.

Montero says that Mylan's rejection of Teva's offer, published yesterday, increases uncertainty, and that Mylan may put its poison pill into operation in order to prevent its shareholders from supporting the deal.

"In case the Teva/Mylan combination would not occur, both companies would continue pursuing other strategic deals, in my view," Montero says.

"Mylan announced its intention of acquiring Perrigo in order to protect itself against an acquisition, and that's not the best strategy for its shareholders," Montero states. She mentions that Mylan expects over $800 million in synergy from Perrigo within four years of the acquisition. "Mylan management is very good, and will be able to achieve this target, but will its shareholders want to wait four years? I see no reason for them to wait when they can get a higher price from Teva in a shorter time."

What effect will the possibility of a lower credit rating for Teva caused by the raising of addition debt to pay for the acquisition have? According to Montero, there were cases in the past in which companies that did not want to be "punished" by a lower credit rating raised debt from private investors. In any case, she believes that this will not prevent the deal from going through.

"Globes": Will Mylan be able to improve its offer for Perrigo?

Montero: "They might raise the price, but given the fact that the synergies will occur only in the fourth year, Mylan's shareholders will not necessarily want the company to pay too much just to remain independent."

What are the chances of Mylan and/or Perrigo remaining independent companies in the current environment of mergers and acquisitions in the industry?

"Anything can happen in the pharma market, but we're seeing so much consolidation in the sector that is seems more logical for them to be acquired than to remain independent."

According to Montero, the consolidation trend in the pharma industry will continue in the medium term. "If we see a drop in productivity in biotech, or a rise in capital costs for the acquiring companies, the trend could change, but I don't think that will happen soon."

Published by Globes [online], Israel business news - www.globes-online.com - on April 28, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Erez Vigodman
Erez Vigodman
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