Statistics weigh against Teva's Mylan bid succeeding

Erez Vigodman and Heather Bresch

A Credit Suisse study finds that most hostile bids fail, especially if antitrust concerns are involved.

Will drug company Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) succeed in its attempted hostile takeover of rival Mylan (MYL), or will it be Mylan that succeeds in its own hostile takeover bid for Perrigo (PRGO)? If the statistics are anything to go by, the chances are that both attempts will fail.

A study by Credit Suisse indicates that, since 1995, only 38% of hostile takeover bids have proved successful. According to the study, the size of the deal makes no difference to the chances of success, but it does point out that no hostile takeover bid over $10 billion has been successfully completed since Amgen acquired biotechnology company Onyx two years ago.

Mylan is attempting to take over Perrigo in a deal that would be worth over $34 billion. Perrigo's board opposes the bid, but Mylan plans to convene a shareholders' meeting to approve it early in the third quarter. At the same time, Teva seeks to take over Mylan in an even larger deal, of over $40 billion, and Mylan's board opposes this adamantly. Completion of the Teva-Mylan deal is conditional on the Mylan-Perrigo deal not going ahead.

This pharma triangle is part of a growing trend of hostile takeover bids since the beginning of this year. In this context, Credit Suisse analyst Ashley Serrao mentions the attempt by agrochemicals company Monsanto to take over rival Syngenta. "The amount of hostile M&A is definitely a metric worth watching as it was one of the salient features of the last M&A cycle," Serrao writes, adding, "2015 year-to-date hostile M&A activity stands at 9% (including failed bids) below peak levels in the last cycle of 12%, attained in 2007."

One of the differences between Teva and Mylan is over antitrust law. Teva sees no problem from this direction, whereas Mylan has said that the antitrust authorities will not permit a merger between the two companies. According to the Credit Suisse study, when a hostile takeover bid is also accompanied by antitrust concerns, the probability that the bid will fail rises, and 52% of such deals are not completed. In deals worth more than $10 billion, the failure rate rises to 78%. With hostile takeover bids involving antitrust problems, there is usually a longer period until the deal is completed or cancelled in comparison with deals that do not involve matters of this kind.

"Another consideration when assessing the likelihood of success or failure is the acceptance of the deal by the decisionmakers, i.e. the Board of Directors and shareholders," the Credit Suisse study states. The statistics gathered by Credit Suisse on this do not augur well for the chances of the two deals on the agenda in the pharma triangle: "We find that the board usually dictates the success of a hostile bid, with only 187 instances since 1995 where a deal crosses the finish line after being rejected by the board."

How long will the saga go on?

It is already two months since Mylan's first offer for Perrigo, and a similar amount of time has passed since Teva made its bid for Mylan. In the intervening period, Mylan has twice revised its bid (and twice received a negative response from the Perrigo board); letters full of pique and emotion have been exchanged between the chairman of Mylan and the CEO of Teva; and Teva has started accumulating Mylan shares on the open market, reaching a stake worth $1.26 billion.

How much longer will this saga go on? According to Credit Suisse's data, in the case of large deals (over $10 billion), the average is 3.5 months to cancellation of the deal, and 6 months to completion. "The time is usually spent on haggling over price and awaiting regulatory and anti-trust approval," Serrao writes.

Published by Globes [online], Israel business news - - on June 15, 2015

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

Erez Vigodman and Heather Bresch
Erez Vigodman and Heather Bresch
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