Mylan and Perrigo each win backing in hostile takeover battle

Proxy advisor ISS says bid for Dublin-based Perrigo too expensive, but Mylan investor and hedge fund Paulson

Mylan appeared to hit a significant hurdle in its quest to buy a fellow drug maker, Perrigo, when an influential advisory firm recommended Friday morning that investors vote down the pursuit.

But by the afternoon, Mylan had gained the support of one of its biggest investors, the hedge fund Paulson & Co.

The two moves complicate a $36 billion hostile takeover bid by Mylan, a manufacturer of generic drugs that recently managed to fend off an unwanted acquisition campaign by another pharmaceutical company, Teva.

The adviser, Institutional Shareholder Services, said in a report that the merger bid posed too many risks for too little reward. It urged investors to reject the campaign at the Mylan shareholder meeting on August 28th.


The move by ISS, as the proxy advisory firm is known, could throw a wrench into Mylan's plans, given the sway that ISS holds over big institutional investors.

Yet the emergence of Paulson as a supporter could indicate stronger backing for the Perrigo bid, given both the hedge fund’s roughly 4.3 per cent stake in Mylan and its influence among investors.

In its report, ISS acknowledged the logic in combining Mylan, which manufactures a host of generic drugs, with Perrigo, which makes a variety of branded treatments. But the deal also appeared to be expensive for Mylan shareholders for a relative $800 million in cost savings as a reward.

“Given that the only certainty, for Mylan shareholders, is that in approving this proposal they would sign up for significant dilution – but have almost no subsequent leverage to drive an optimal outcome, despite the many uncertainties to the rest of the process – support for the proposal is not warranted,” the proxy adviser wrote in its report.

Mylan, which first offered to buy Perrigo in the spring and was consistently rebuffed, is currently offering $75 a share in cash and 2.3 of its shares for each Perrigo share.

It breathed a sigh of relief last month after Teva Pharmaceutical Industries, which had pressed a roughly $40 billion takeover bid, withdrew in favor of another transaction. But analysts have suggested that at least some of Mylan's shareholders would have preferred to sell their holdings to Teva and do not favor the proposed Perrigo transaction.

Shares in Mylan have fallen 17 per cent since the end of Teva’s takeover campaign.

Even if Mylan wins over its own investors, there is no guarantee it will garner enough support from Perrigo’s. To claim victory, it needs the backing of at least 50 per cent of its target’s investors and one additional share – down from an initial requirement of 80 per cent.

Perrigo said in a statement that ISS' decision vindicated its steadfast opposition. "Ultimately, we do not believe that Perrigo shareholders will tender into this transaction – whether at 80 per cent or 50 per cent – and ISS' recommendation only further reinforces our view that Mylan's approach demonstrates an act of desperation as there is no rational path to a full acquisition of Perrigo," said Joseph Papa, the chairman and chief executive of Perrigo.

But the unusual public declaration of support by Paulson, which despite its renown for its mortgage bets started by betting on the outcome of mergers, could prove just as important. The hedge fund said that it believed in the logic of the deal, which in its estimation would create “a global pharmaceutical powerhouse”.

Mylan's effort has other factors in its favor. Abbott Laboratories, the drugmaker's biggest investor with a 14 per cent stake, has said that it supports the Perrigo campaign. And two other shareholder advisers, Glass Lewis and Egan-Jones Ratings, backed the takeover effort this week, although both are considered less influential than ISS.

"While today's report from ISS repeatedly recognises the clear industrial logic and solid business strategy of combining Mylan and Perrigo, it misunderstands and/or underestimates, without a meaningful basis, many other key aspects of the transaction," Robert Coury, Mylan's executive chairman, said in a statement.

"We have spent a great deal of time talking to our shareholders about this opportunity and remain extremely confident we will receive their support," Mr Coury said. – Copyright New York Times 2015