Teva Pharmaceuticals Hopes $40 Billion Mylan Deal Will Fuel Stock Rebound – Forbes

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Teva Pharmaceuticals Hopes Billion Mylan Deal Will Fuel Stock Rebound – Forbes

In the red hot market for pharmaceutical deal-making it’s either eat or be eaten. That’s the case with Teva Pharmaceutical’s $ 82 a share cash and stock bid for generic competitor Mylan Mylan, a direct challenge to Mylan’s near $ 30 billion takeover bid for Perrigo Perrigo, unveiled on April 8.

The question now is whether Mylan’s board of directors and its stockholders will cast their lot with Teva Pharmaceuticals, a company that’s seen its stock dramatically underperform the S&P 500 Index over the past five years, or whether they will continue to support a management team led by CEO Heather Bresch that’s driven a near 250% share price increase since the beginning of 2012, outperforming the S&P’s 66% return.

The M&A battle also underscores that the sweepstakes for mid-tier drugmakers have never been higher.

Heather Bresch, chief executive officer of drugmaker Mylan Inc., speaks during an interview in New York

Over the past 24-months, tax-advantaged firms have been buying up assets, particularly generic drugmakers and those with treatments not subject to a patent expiration, offering investors the promise of large synergies and a quick payback on deals. Valeant Pharmaceuticals Valeant Pharmaceuticals set off the drugmaking arms race with a flurry of deals, and more recently firms such as Actavis Actavis, Mylan, Perrigo and Shire Shire have all gone through their own bouts of dealmaking.

Bankers and investors stitching together the consolidation wave argue that mergers allow drugmakers to operate more efficiently and with fairer tax bills, helping them to meet an anticipated drop in overall healthcare costs, which have risen far faster than the inflation-rate for decades. In the U.S., healthcare costs as a percentage of gross domestic product exceeded 17% in 2014. However, some look at the deal-making with skepticism, arguing that mergers hinge on cuts to research and development, tax dodging maneuvers and M&A accounting gimmicks.

One thing is clear, the wave is accelerating, not slowing. “M&A is currently being rewarded after having been punished in the past, and likely will continue to be rewarded for some time,” Morgan Stanley analysts said on Tuesday. ”[P]harma M&A is benefiting from ample access to capital and a typically minimal time before a transaction becomes accretive – cyclical advantages that should support more “roll-up” activity,” the analysts added

Now, as Teva Pharmaceuticals takes on Mylan’s business strategy through a premium-priced takeover bid loaded with promised synergies, the consolidation of the pharmaceutical sector may be coming to a head. In making its about $ 40 billion cash and stock offer for Mylan, Teva Pharmaceuticals is saying its proposed combination has better prospects that Mylan’s recent bid for Perrigo.

Teva Pharmaceuticals characterized its bid as a “more attractive alternative for Mylan stockholders than mylan’s proposed acquisition of Perrigo.” The deal, Teva said, will transform the generic drug-making sector, leveraging large overlapping assets in both generics and specialty drugs.

Financials in the bid, meanwhile, promise significant synergy, earnings accretion and de-leveraging. Teva said it will be able to generate $ 2 billion in annual cost synergies and tax savings through the Mylan deal, and said a merger would be immediately accretive to non-GAAP earnings per share and approach 30% EPS accretion by the third year after its close.

Teva also said its $ 82 a share offer would be split evenly between cash and stock, giving Mylan shareholders the ability to participate in any upside achieved by the combined company. The combined company is expected to have over $ 30 billion in revenues, $ 10 billion in EBITDA and cash flow from operations (excluding restructuring costs) of $ 6 billion by 2016. That earnings profile, Teva said, will help it quickly pay back takeover financing, de-leveraging to 3-times gross debt-to-EBITDA within 24-months.

“Our proposal is compelling for both Teva and Mylan stockholders and other stakeholders,” Erez Vigodman, CEO of Teva, said in a statement. “We have long respected Mylan’s business, and we are confident that Mylan’s Board of Directors and stockholders will agree that our proposal represents a significantly more attractive alternative for Mylan and its stockholders than Mylan’s proposed acquisition of Perrigo,” Vigodman added.

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