Mylan-Pfizer off-patent merger boosts Teva

Robert Coury  photo: Tamar Matzafi

Teva's share price is higher on Wall Street on expectations of further consolidation in the generics industry.

Mylan and Pfizer are merging their generics activity. Mylan's share price is up 13% on Wall Street, and Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) share price is up 3.5% as a result of expectations in the market of further consolidation in the generics industry.

Generic pharmaceutical company Mylan is merging with that of Upjohn, Pfizer's off-patent division, in a share deal in which each Mylan share will be traded in for one share in a new company that will become the world's largest generic drug company. Pfizer shareholders will hold 57% of the company and Mylan's shareholders will hold the other 43%. The boards of directors of Pfizer and Mylan approved the deal. "The Wall Street Journal" reported the deal last week, giving Teva's share price a boost on the Tel Aviv Stock Exchange (TASE), despite negative arbitrage from last week on Wall Street.

The still-unnamed merged company is projected to report $19-20 billion in pro forma revenue, $7.5-8 billion in EBITDA, and $4 billion in cash flow in 2020. The two companies state that the new company will focus on the return for the shareholders, while maintaining a good debt rating. The new company's policy will be to distribute 25% of free cash flow as a dividend. Pfizer and Mylan expect the ratio of debt to EBITDA to reach 2.5 by the end of 2021.

For the same of comparison, Teva is projected to report $17 billion in revenue and 28% EBITDA in 2020, compared with $19-20 billion in revenue and 40% EBITDA for the new company. Furthermore, Teva's leverage is substantially higher than the leverage target published by Pfizer and Mylan today. The two companies are also expected to achieve synergy and cost savings amounting to $1 billion by 2023.

Mylan chairman Robert Coury will be executive chairman of the merged company, while Pfizer’s generic unit president Michael Goettler will be CEO. Mylan president Rajiv Malik will be president of the new company, while Mylan CEO Heather Bresch will retire when the deal is completed.

Today, before the official announcement, BTIG managing director and analyst Timothy Chiang wrote that such a deal was a catalyzer for the generic drug sector. Cowen analyst Ken Cacciatore, on the other hand, wrote, "Combining two things that are bad for each other will not solve the structural problems."

"Over the past year and a half, I have spent a lot of time speaking with and listening attentively to our shareholders," Coury said. "Today's announcement builds upon many of those meaningful conversations and represents a transformative move for Mylan. The new company, which combines the unique assets of Mylan with the iconic brands of Pfizer's Upjohn business, will not only accelerate our mission to serve the world's changing health needs, but also further unlock the true value of our platform while delivering attractive returns to shareholders for many years to come."

Mylan was once listed on the TASE as a result of its unsuccessful bid to take over dual-listed company Perrigo. Its share was also part of the leading indices, and Israeli investment institutions therefore had fairly large holdings in it. According to figures published on the Stocker.co.il website, as of the dates of the most recent reports, Israeli investment institutions held 21.68 million Mylan shares with a value of $490 million (following the rise in today's pre-trading). The largest holding in Mylan among Israeli investment institutions was by pension and insurance company Menorah Mivtachim - six million shares with a value of $135 million, followed by Harel Insurance with a holding worth $78 million and the Meitav Dash investment house with a holding worth $50 million. Teva tried to take over Mylan four years ago at a $40 billion value for Mylan. Both Teva and Mylan have since lost large proportions of their market caps.

Published by Globes, Israel business news - en.globes.co.il - on July 29, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Robert Coury  photo: Tamar Matzafi
Robert Coury photo: Tamar Matzafi
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