Teva decides to drop Mylan bid

Instead, it will buy Allergan’s generics division for $40.5B

Mylan wriggled off the acquisition hook Monday as Israel’s Teva Pharmaceutical Industries announced it was no longer interested in reeling in the Cecil generic drug maker and instead would buy the generics division of Allergan Plc.

The surprise news that the world’s biggest generic drug company was dropping its hostile $82per-share pursuit of Mylan sent Mylan shares sharply lower, plunging $9.57, or 14.5 percent, to close at $56.37.

Teva agreed to pay some $40.5 billion in cash and stock for the Allergan business, roughly the same price it had offered for Mylan. The acquisition, which is expected to close in the first quarter next year, would give Teva greater geographic reach, including a foothold in India, and more negotiating leverage with governments and private health insurers.

It was a stunning reversal for Teva, which late last week renewed its commitment to acquiring Mylan by saying it was prepared to go to court in an effort to nullify the activation of Mylan’s Dutch poison pill anti-takeover defense set up through a separate foundation known as a “stichting.” Mylan, which has its operations base in Cecil, reincorporated in the Netherlands this year

to cut its tax bill in a controversial maneuver known as an inversion.

“Despite … our conviction that we ultimately would have succeeded in acquiring Mylan, we believe we have an even greater opportunity to create compelling, sustainable value for Teva’s stockholders through our transaction with Allergan,” Teva CEO Erez Vigodman said in a statement.

Mylan, whose management has been fighting Teva’s advances in an unusually acrimonious manner, issued a statement congratulating its former suitor on the Allergan deal. Mylan said it would continue pressing ahead with its own unsolicited effort to buy over-thecounter drug specialist Perrigo.

Mylan shareholders will be asked to OK the acquisition of Dublin, Ireland-based Perrigo at a special shareholders meeting scheduled for Aug. 28 in Amsterdam.

If shareholders approve the deal, Mylan will then have to sell Perrigo management on a merger that so far has been rejected or try to win Perrigo’s hand by taking the roughly $33 billion cash-and-stock offer directly to shareholders.

Since Mylan’s bid for Perrigo involved a combination of cash and stock, a decline in Mylan’s stock price affects the value of the bid, which Mylan might have to adjust.

Mylan in April proposed exchanging $75 in cash and 2.3 Mylan shares for each Perrigo share. When it made the offer, its stock was trading at about $74 a share.

While praising the TevaAllergan deal, analysts had some harsh words for Mylan’s top executives.

“Not engaging with Teva — for what appears very little reason other than management overreach — is disappointing to us,” Cowen and Co. analyst Ken Cacciatore wrote in a note to clients. “Mylan management severely misplayed their hand, in our opinion, and the Mylan shareholders will now be forced to suffer from it.”

Teva, which made its offer for Mylan in April, had been widely expected to raise its bid.

“Now, as likely a standalone entity, we watch with anticipation to see if Mylan management/board can ever get close to what we eventually thought would be a Teva/Mylan transaction price of $90,” Mr. Cacciatore said.

He criticized Mylan’s offer for Perrigo, saying he didn’t expect the combination to add to Mylan’s earnings until at least year four, “which we believe shareholders will have a tough time stomaching.”

Mylan’s rejection of Teva had included a blistering letter from executive chairman Robert Coury, calling Teva troubled with “a problematic culture and leadership.”

“It’s implausible that Teva can realistically satisfy our minimum criteria” for a suitor, Mr. Coury wrote.

S&P Capital IQ analyst Jeff Loo issued a research note Monday critical of that stance.

“We believe [Mylan’s] tactics, including the Dutch stichting poison pill, had effectively put its goal of remaining independent ahead of its shareholders’ interests,” he wrote.

Morningstar analyst Michael Waterhouse said he thought Teva did well by snapping up Allergan’s generics business instead.

“We think [the Allergan unit] was the better of the two,” he said in an email.

Teva had faced an increasingly uphill battle in its quest for Mylan.

Besides a bitterly reluctant Mylan management and the activation of the stichting defense last week, Mylan had the backing of Abbott Laboratories — its largest shareholder with about 14 percent of Mylan’s shares — in its effort to buy Perrigo.

Abbott received a stake in Mylan in exchange for part of its non-U.S. generics business in February.

For its part, Allergan said it wanted to focus on its higher-margin branded pharmaceuticals, including its Botox wrinkle treatment.

In an interview with CNBC, Allergan CEO Brent Saunders said the deal took just three weeks from the time Teva approached the company until both sides approved it.

Teva’s deal with Allergan comes amid a wave of mergers in the health care industry. Announced pharmaceutical deals so far this year have topped $180 billion, according to data compiled by Bloomberg. That’s on track to beat last year’s record of some $200 billion.

Mr. Waterhouse said Teva and the Allergan unit had no significant overlap, so he expected only limited divestitures to clear any antitrust hurdles.

Teva’s shares shot up $10.15 Monday, or 16.4 percent, to close at $72.

The company, which had accumulated a roughly 4.6 percent stake in Mylan in recent weeks to aid its takeover effort, said Monday it would “review its options” for its 22.6 million Mylan shares.

Teva’s deal with Allergan comes amid a wave of mergers in the healthcare industry.