Cantillon: Perrigo at wrong end of another deal

The ripple effect of the wave of corporate inversion in the pharma/medtech sector continues to drive the ongoing wave of consolidation.

Less than two years ago, US consumer pharma/generics group Perrigo swooped on the rump of Ireland's Elan for $8.6 billion, attracted by the stream of royalty income attached to the blockbuster multiple sclerosis drug Tysabri and, more importantly, the chance to avail of an effective tax rate close to half of what it was paying as a US-domiciled business.

Now it finds itself at the wrong end of another deal.

Mylan is a major rival of Perrigo in the generics space and, ironically, was among the companies reputed to be circling the dying Elan at the time of the Perrigo deal. It is looking to swallow the Dublin-domiciled but Michigan-based Perrigo in a deal worth $28.9 billion, creating what would be a major force in generics and over-the- counter medication in the US and Europe.

Mylan is based in the Netherlands following its own inversion, having acquired the operations outside the United States of Abbot Labs last year in a $5.3 billion deal.

Earlier this year, chief executive Heather Bresch specifically referred to the "financial flexibility" the company had secured with its move to a lower tax environment which, she said, allowed Mylan to "do some pretty sizeable deals".

But the formal approach to Perrigo reflects more than just a desire to improve scale, range and geographic reach. Lurking in the background is the prospect that Mylan itself could become a target.

Israeli group Teva has been identified as a likely suitor as it looks to offset its own patent cliff, while no one believes the appetite of serial acquirers Valeant and Actavis is yet sated.

Less than a week before the move on Perrigo, Mylan had put in place its own defence against unwanted takeover approaches.

It appears Perrigo's chief executive Joe Papa and Mylan chairman Robert Coury have been talking about such a merger from some time to judge from comment in a letter from Coury to Papa released this week.

However, the decision to release the letter points fairly clearly to the failure of Mylan to convince Papa and Perrigo of the merits of such an arrangement.

With a formal bid now on the table, failure to conclude a deal could see both parties exposed to the unwanted attentions of others.