Cantillon: Don’t expect dividends in Mylan offer

Shareholders in over-the-counter drug specialists Perrigo receive their latest quarterly dividend today. It comes as they mull the formal offer for their shares from rival Mylan.

And, as they read the Mylan prospectus, one thing they will discover is they need not factor in dividends for the future if the Dutch-based US generics drug giant succeeds in acquiring their company.

Perrigo, of course, is Irish in much the same way that Mylan is Dutch. The once-sleepy US business has been an enthusiastic player in the ongoing cycle of consolidation that has defined valuations in the pharma sector in recent years.

It assumed Irish domicile when it acquired what was left of Elan Corp for $8.6 billion in 2013. The attraction was the stream of royalty income from ongoing sales of Elan's former multiple sclerosis drug Tysabri. While rights to the drug itself had been sold, the low-risk royalty income remained to boost cashflow and, along with Ireland's corporate tax regime, proved sufficiently attractive to lure Perrigo to Dublin.

Mylan is offering $75 in cash and 2.3 Mylan shares for each Perrigo share, or about $187 per share in what amounts to a $27 billion deal. In the offer letter, Mylan executive chairman Robert Coury says the choice for Perrigo shareholders is to participate "in the exciting potential for growth and value creation of a combined Mylan-Perrigo, or receive no upfront cash and risk a significant and precipitous drop in value in Perrigo's stock".

The stock of Perrigo has fared better than that of Mylan over the past year and five-year periods. While Mr Coury clearly believes in his proposition, the arguments for and against a merger are nowhere as clearcut as he would have Perrigo shareholders believe.

What is certain is that, should they accept, Perrigo shareholders will be banking on Mylan’s share price continuing to rise as it has a stated policy of not paying dividends to shareholders.