Mylan NV disclosed Wednesday that it issued what it called "a preliminary proposal" to acquire Perrigo Co. plc for $205 per share, paid in an undisclosed combination of cash and Mylan stock, to create a global powerhouse across branded, generic and over-the-counter (OTC) pharmaceuticals. The deal valued Dublin-based Perrigo at approximately $28.9 billion.

Mylan said the offering price represented a premium of more than 25 percent to the closing price of $163.73 for Perrigo's shares (NYSE:PRGO) on April 3 – the last trading date prior to Mylan's proposal, dated and delivered to Perrigo on Monday. Mylan said the price also represented a premium of more than 29 percent to Perrigo's 60-day average share price of $158.71 at the market's close on April 3 and more than 28 percent to Perrigo's 90-day average share price of $159.64 at the market's close on April 3.

In a letter to Joseph C. Papa, Perrigo's president, CEO and chairman, that Mylan made public, Robert J. Coury, Mylan's executive chairman, said the non-binding proposal provided "a very significant cash payment" to Perrigo shareholders.

"Even with conservative assumptions for what we believe to be significant and meaningful synergies coming from both companies, our proposal provides Perrigo shareholders with an even greater equity value in the combined company than they currently have in Perrigo today," Coury added in the letter. "In addition to the compelling value to shareholders, a combination of Mylan and Perrigo would offer substantial benefits to the other stakeholders of both companies. In particular, the combination would provide a broader variety of opportunities to our employees and increased stability for the communities in which we operate and serve."

Mylan is headquartered in Potters Bar, UK, where the business is managed, but earlier this year the company incorporated under the laws of the Netherlands, following the acquisition of Abbott's non-U.S. developed markets specialty and branded generics business by Mylan Inc., which was headquartered in Pittsburgh.

In that deal, Abbott received 105 million shares of the combined company, valued at approximately $5.3 billion. Abbott then carved out the assets and transferred them to the new public company known as Mylan NV. Mylan Inc. then merged with a wholly owned subsidiary of Mylan NV, which became the new parent.

A kicker to the deal, which passed scrutiny by U.S. regulators, was that Mylan shareholders, who owned approximately 79 percent of the new parent company, were required to recognize any gain for U.S. federal income tax purposes when the Mylan Inc. common shares were exchanged for Mylan NV ordinary shares.

In March, Mylan NV completed the purchase of Mylan Inc.'s debt securities, putting the finishing touches on the transaction.

Perrigo gained its Irish domicile at the end of 2013 when it completed the acquisition of Elan Corp. plc, of Dublin, for $8.6 billion. That deal, which comprised about $3.26 billion in cash up front plus shares of Perrigo, was the culmination of a bidding war with New York-based Royalty Pharma LLC that saw Elan's board throw its unanimous support to Perrigo, previously based in Allegan, Mich., where the company's North American operations are still housed. (See BioWorld Today, July 30, 2013.)

With an eye to leveling the potentially complex regulatory playing field, Mylan said the Perrigo proposal was prepared in accordance with U.S. securities law, Irish law and the Irish Takeover Rules. In light of those rules, Mylan pointedly emphasized that disclosure of its overture did not represent "a firm intention to make an offer."

Nevertheless, Coury noted in his letter that Mylan and its advisors studied the regulatory aspects of combining the companies, "and we are confident that we would be able to structure a transaction that would not pose material impediments to closing."

Shares in both companies soared following the announcement, which came at Wednesday's close of business in Europe. Mylan (NASDAQ:MYL) hit a one-year high of $70.21 before closing at $68.36 for a gain of $8.79, or 14.8 percent. Perrigo spiked to an historic high of $215.73 before closing at $195 for a gain of $30.29, or 18.4 percent. Trading in both stocks was brisk.

'UNSOLICITED, INDICATIVE PROPOSAL FROM MYLAN'?

Coury put the ball firmly in Perrigo's court but disclosed in the letter that "as you and I have discussed on a number of occasions over the past few years, a combination of Mylan and Perrigo offers clear and compelling strategic and financial benefits."

He maintained that combining Mylan and Perrigo would provide "significantly greater near-term and long-term value" to Perrigo's shareholders than the standalone company could deliver.

"Our proposal is the natural culmination of our prior discussions and reflects our shared vision for the industry," Coury wrote, adding his optimism that the companies would work together in the coming weeks "to create a unique leader with a one-of-a-kind profile in our industry."

Coury's letter cited a raft of synergies, including complementary businesses that each have a strong presence in developed and emerging global markets; a diversified portfolio with critical mass across generics, OTC and specialty brands; a commercial platform that would encompass a strong reach across multiple channels, for greater leverage with distributors and payers; an "unrivaled" combined manufacturing platform, supply chain capabilities, vertical integration and global sourcing expertise; and R&D capabilities across branded and OTC drugs, including expertise in complex formulation technologies.

Mylan's board was prepared to name Papa as co-chairman and a member of the board of the combined company, according to Coury, whose letter cited approximately $15.3 billion in 2014 pro forma sales across the combined enterprise.

Perrigo's board issued a statement Wednesday that it plans to meet to discuss the "unsolicited, indicative proposal from Mylan" but did not provide a timetable or respond to an inquiry for more details.

Other than Abbott, Mylan has been mostly busy in recent years with asset plays, especially in biosimilars. According to Biosimilars: A Global Perspective of a New Market, a BioWorld publication, in 2009 Mylan partnered with Bangalore, India-based Biocon Ltd. to develop, manufacture, supply and commercialize five biosimilar monoclonal antibodies (MAb), retaining exclusive commercialization rights in Australia, Canada, Europe, Japan, New Zealand and the U.S. Biocon retained co-exclusive commercialization rights in other markets.

The companies expanded their partnership in 2013 to include the development and commercialization of three insulin copies, with the deal giving Mylan the rights to develop and market Biocon's Glargine (Lantus, Sanofi SA), Lispro (Humalog, Eli Lilly and Co.) and Aspart (Novolog, Novo Nordisk A/S). Mylan and Biocon are sharing development, capital and certain other costs, and Mylan has exclusive commercialization rights in Australia, Canada, Europe, New Zealand and the U.S. through a profit-share arrangement, and the companies have co-exclusive commercialization rights in certain other markets.

Biocon and Mylan launched their first MAb biosimilar, trastuzumab, in India early last year, with Biocon marketing it as Canmab and Mylan selling it as Hertraz.

In September 2014, a Mylan Inc. subsidiary paid up to $300 million to acquire U.S. commercialization, marketing and IP rights for the anticoagulant Arixtra (fondaparinux) and an authorized generic (AG) of the drug from Aspen Global Inc. The deal was designed to allow Mylan to expand its deep vein thrombosis and pulmonary embolism prevention offering to hospitals, which often use the drug following the more than 1 million hip and knee surgeries performed each year in the U.S. (See BioWorld Today, Sept. 11, 2014.)

Perrigo's pick-up of Elan transferred ownership of Elan's royalty position in the multiple sclerosis drug Tysabri (natalizumab, Biogen Inc.) and gave it ownership of neuropsychiatric drug candidate ELND005 (scyllo-inositol), partnered with Transition Therapeutics Inc., of Toronto, which is being evaluated to treat agitation and aggression in Alzheimer's disease. The deal also provided Perrigo equity stakes in several other firms, including Dubai-based Newbridge Pharmaceuticals FZ-LLC, Dublin-based Prothena Corp. plc and Cambridge, Mass.-based Proteostasis Therapeutics Inc.

'IT'S UNCLEAR WHAT TEVA'S NEXT MOVE WILL BE'

Mylan's move came less than two weeks after Teva Pharmaceutical Industries Ltd., of Jerusalem, doused rumors about making its own play for Mylan by going in a different direction with a $3.2 billion tender offer for Auspex Pharmaceuticals Inc. (See BioWorld Today, March 31, 2015.)

That deal would give Teva control of lead compound, SD-809 (deutetrabenazine), which grew out of Auspex's deuterium technology platform and is being developed for the potential treatment of chorea associated with Huntington's disease, tardive dyskinesia and Tourette syndrome, with a pharmacokinetic profile that allows for lower doses and thus a better safety profile. In disclosing its bid, Teva officials also cited other complementary pipeline products, including five pain candidates. (See BioWorld Today, March 19, 2009, and Dec. 18, 2014.)

But Mylan's Perrigo overture sparked anew the Teva talk. In a research note, RBC Capital Markets LLC analyst Randall Stanicky suggested the Mylan play for Perrigo "makes strategic sense" but he made an even bigger case for a Teva-Mylan transaction.

A Mylan-Perrigo combination "is only moderately accretive," he maintained, citing estimated 2016 and 2017 accretion of 0 percent to 4 percent, based on estimated Mylan pro forma earnings per share (EPS) of $4.65 in 2016, $5.25 in 2017 and $5.99 in 2018.

"The more interesting opportunity," he suggested, is for price/earnings (P/E) accretion and a blended P/E of 16.2x against an estimated 2016 pro forma EPS, providing an upside of 11 percent.

"Strategically, this would be a smart deal for MYL given the much needed growth boost to EBITDA that the PRGO business would bring," Stanicky wrote. "While we like the idea of giving up some near-term accretion for a more 'growth' accretive target, based on our initial analysis it may be hard to make this deal financially compelling without arguing for valuation upside."

A Teva deal for Mylan would deliver more accretion, he added, "though it's unclear what TEVA's next move will be, if there is one." Estimated pro forma EPS of $5.44 in 2016, $6.44 in 2017, and $7.46 in 2018 would provide accretion of 5 percent, 19 percent and 31 percent, respectively, at an $80 takeout price, Stanicky suggested, while providing Teva with "much needed diversification away from Copaxone." He predicted a move by Teva could depend on Perrigo's response to Mylan.

Jefferies Group LLC analyst David Steinberg also questioned whether Mylan was positioning itself defensively against Teva, though he suggested the offer undervalued Perrigo, either way.

"We believe the [companies] would have issued a joint press release with definitive merger terms if the talks have indeed proceeded to the late stages," he wrote in an industry note. "One likely interpretation of the disclosure from MYL is that the [company] is actively playing 'defense' against Teva, who a myriad of media outlets have reported is considering a bid."

Teva may be forced to make hostile bid for Mylan, if it chooses to go forward, Steinberg suggested. He alluded to a bit of a Catch-22, however, noting that "it may not be possible for TEVA to launch a hostile bid for MYL given its new Netherlands jurisdiction."

Steinberg professed no surprise at the emergence of a bidder for Perrigo, which he described as having a "truly unique business model," dominating the store-brand OTC market with a 70 percent market share.

He was underwhelmed at the offering price, however.

"Given the uniqueness of the PRGO business model, its dominance in store brands and its deep pipeline of future Rx to OTC switches, among other attributes, we believe MYL's offer appears to undervalue the PRGO asset," Steinberg wrote. Without knowing the cash/stock split of Mylan's proposal, given the market caps of each company "the transaction would effectively be a merger of equals," he pointed out.

Moreover, "given the scarce nature of high value assets such as PRGO we would imagine that investors would expect a ~40-50 percent premium for the equity" – more in line with the takeout premiums above 40 percent normally seen for premier specialty pharmas, he added.

An informal poll conducted by Evercore ISI analyst Umer Raffat further suggested the Mylan offer might be a trial balloon, with virtually all respondents indicating the price for Perrigo will need to go higher – perhaps an increase of 10 percent or more. Only slightly more than half the respondents thought Mylan would be able to close the Perrigo deal and, tellingly, nearly two-thirds of respondents favored a Teva-Mylan tie-up over a Mylan-Perrigo merger.