The three-way pharmaceutical tussle involving Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), Mylan N.V. and Perrigo Company (NYSE:PRGO; TASE:PRGO) will probably be resolved in a fashion that will satisfy two of the giant companies. If indeed Teva does buy Allergan's generic division then it will give up on its bid for Mylan just as Mylan has wanted from the start. At the same time, Teva will be strengthening its position in the generic pharmaceutical market, which is the very reason it has been seeking to buy Mylan.
On the other hand, Perrigo, which has been opposing Mylan's attempts to acquire it, will be less satisfied with the latest developments. Until now, Teva has stood between Mylan and a potential purchase of Perrigo. This is because the Israeli company has been threatening that if Mylan buys Perrigo then it would withdraw its offer to buy Mylan. But the moment that Teva pulls out of the race, the chances grow that Mylan will be able to complete its acquisition of Perrigo.
The opposite could also be true. It is possible that Teva relinquishing the idea of buying Mylan will lead to Mylan giving up on buying Perrigo. It may well be that the plan to buy Perrigo was simply a defense mechanism against Teva's hostile bid, which can now be jettisoned.
One of the claims of Mylan chairman Robert Coury, who vehemently opposed Teva's takeover bid, was that Teva was not committed to the bid because it had not submitted a binding offer. On the assumption that Teva does now indeed forego the Mylan acquisition in favor of Allergan, it would seem in retrospect that Coury was right. In any event, the onus will still be on Coury to prove to his shareholders that his struggle to remain an independent company and avoid being bought by Teva, was worthwhile. One of the ways to prove that would be to complete the acquisition of Perrigo and achieve the promised synergy. It won't be easy.
From Teva's point of view, relinquishing attempts at a hostile takeover of Mylan in favor of an agreed deal will be an easier and cheaper process because it won't include the high legal costs that would have been requited to push the Mylan deal through.
However, there is now a question as to what Teva will do with the Mylan stake that it has built up. In its attempts to take over Mylan, Teva spent $1.6 billion on its 4.6% stake. It can be assumed that Mylan's shares will fall if Teva's offer to purchase is no longer on the table, causing Teva a loss on paper on the shares. The question is whether that loss on paper will be translated into a real loss, when Teva sells the stake, and what impact it will have on its results. It is true that when considering $40 billion takeovers, $1.6 billion is small change but compared with Teva's previous acquisitions, this is twice the amount invested in Labrys Biologics and half the amount invested in Auspex Pharmaceuticals.
Published by Globes [online], Israel business news - www.globes-online.com - on July 26, 2015
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