Health Care and Manufacturing

Perrigo advises shareholders to reject hostile takeover bid

September 17, 2015
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Perrigo acquires Rosemont Pharmaceuticals for $283M to expand in U.K.
Perrigo is a global maker of branded and store-brand over-the-counter drugs, generic prescription drugs and store-brand infant formula. Photo via fb.com

Perrigo advised shareholders today to reject a hostile takeover bid by a rival drug maker.

Perrigo said its board of directors reviewed Mylan's unsolicited tender offer to acquire all of the outstanding shares of Perrigo and in consultation with its financial and legal advisors, “unanimously determined that the offer substantially undervalues the company and does not adequately compensate shareholders for Perrigo's exceptional growth prospects.”

Mylan offer

Mylan, which is based in the Netherlands, offered on Monday to acquire all outstanding ordinary shares of Dublin-based Perrigo, which operates its North American base in Allegan.

Under the proposed offer, Perrigo shareholders would receive $75 in cash and 2.3 Mylan ordinary shares for each Perrigo ordinary share.

“The price we are offering Perrigo shareholders represents a generous multiple of approximately 19x, based on Mylan's current share price, which is one of the highest multiples paid in our industry to date, taking into account recent large transactions, and we believe this multiple fairly reflects the intrinsic value of Perrigo,” said Robert Coury, executive chairman, Mylan.

Mylan has made multiple unsuccessful attempts since April to acquire Perrigo, which have all been rebuffed by the company.

Perrigo has repeatedly said Mylan’s offers undervalue the current and future value of the company.

Letter to shareholders

In a letter to shareholders today, Perrigo President, CEO and Chairman Joseph Papa repeats that claim and provides several reasons why the offer should be rejected.

“Our board of directors has repeatedly rejected Mylan's offer, because it substantially undervalues our company and does not adequately compensate shareholders for our exceptional standalone growth prospects,” Papa writes.

Papa notes Perrigo shareholders have received a total shareholder return of more than 970 percent since 2007.

“In that time period, we have successfully integrated 27 acquisitions with trailing 12-month net sales of more than $3.2 billion,” Papa writes.

He says Perrigo has an “outstanding track record” and a “bright future.”

Papa says based on Perrigo’s Base Plus Plus Plus strategy, the company expects “durable global base business, with consumer-facing products comprising approximately 75 percent of net sales, coupled with $1 billion in new product launches over the next three years (not including additional launches from the Branded Consumer Healthcare segment), to realize an organic net sales compound annual growth rate goal of 5-10 percent.”

The company also expects to see increased value from its European business as the it competes for a larger share of the $30-billion European over-the-counter market.

Papa also says shareholders would be taking a risk unlikely to pay off as promised by Mylan, saying the deal is “is dilutive to Mylan's adjusted EPS for at least three years, even if Mylan's synergy estimates are fully realized. Current Wall Street consensus forecasts estimate substantial double-digit dilution in year one.”

He calls Mylan’s synergy target of at least $800 million “overly optimistic,” due to “limited operational similarities between the two companies and Perrigo's already lean business model.”

He highlights a series of negative financial outcomes Perrigo believes acceptance of the Mylan deal would result in for shareholders.

“It presents clear risks and would result in value destruction for shareholders,” Papa writes.

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