Mylan makes $28.9bn offer for Perrigo

Mylan, one of the world's biggest generic drug groups, has proposed buying Perrigo, a maker of cough medicines and allergy remedies, for about $28.9bn, as the pharmaceuticals industry continues to engage in a frenetic round of deal making.

The unsolicited cash-and-stock transaction values the maker of store-brand versions of paracetamol, decongestants and antihistamines, at $205-a-share, according to a letter sent to Perrigo's chief executive on Monday.

Mylan went public with its proposal before agreeing a deal, which some analysts interpreted as a sign its offer had already been rejected by the Dublin-based group. Perrigo said in a statement its board would meet to consider Mylan's "unsolicited, indicative proposal".

The proposal, described as a "culmination of a number of prior discussions", is pitched at a 25 per cent premium to Perrigo's closing share price last Friday. It said any offer would include "a very significant cash payment to Perrigo shareholders".

Shares in Perrigo initially jumped 25 per cent to $206 in early New York before settling back to $200.84. Mylan added 13 per cent to $67.30, giving it a market capitalisation of $33bn.

If consummated, the takeover would be the latest in a healthcare and pharmaceuticals deals boom, as acquisitive companies take advantage of cheap debt to boost revenues and earnings.

In the first three months of 2015, the total value of healthcare deals reached $95.3bn, a 70 per cent increase on the same period a year ago, according to data from Thomson Reuters.

So-called speciality pharma groups have been especially active, as they often try to grow through deal making rather than investing in research and development. Earlier this year, Valeant, the Canadian drug group, agreed to buy Salix, a gastrointestinal specialist, for almost $16bn following a bidding war, while Endo and Mallinckrodt have also become serial acquirers.

Perrigo acquired Irish biotech group Elan for $8.6bn in 2013 in a so-called tax inversion deal, enabling it to cut its tax rate by moving its domicile to Ireland. Mylan also recently completed a tax inversion.

Ronny Gal, an analyst at Bernstein, said: "Some deal involving Mylan is likely. Mylan's offer was obviously rejected by Perrigo, which is why they went public. Reasonably, Mylan will need to go higher to consummate the deal."

Mr Gal said he and his colleagues suspected the proposal could have been flushed out by another potential combination, such as a bid for Mylan by Teva, although he cautioned he had no knowledge of any such transaction.

"At any rate, with the amount of deal-focused cash slushing around in speciality pharma, we suspect some transaction would be consummated," added Mr Gal.

Mylan said the combination would result in company with "critical mass" in speciality branded medicines, generic drugs, over-the-counter remedies and nutritional supplements.

Robert J. Coury, Mylan's executive chairman, said: "We look forward in the weeks ahead to working with [Perrigo] to capitalise on this tremendous opportunity and working together to create a unique leader with a one-of-a-kind profile in our industry."

In his letter to Joseph Papa, Perrigo chief executive, Mr Coury said the combined group would have annual revenues of $15.3bn, giving it the clout it would need to prosper in an "environment where scale and reach are becoming increasingly important".

Mr Coury's letter said he had discussed a potential takeover with Mr Papa "on a number of occasions over the past few years".

The letter did not outline what role Mr Papa would have following any transaction, but said Mylan's existing management would stay in their jobs. Mr Coury said he also hoped some of Perrigo's executives would stay on.

Mylan said there was no certainty that its "non-binding indication of interest", which is subject to it carrying out due diligence on Perrigo, would result in a formal offer.

Goldman Sachs is acting as financial adviser to Mylan, while Cravath, Swaine & Moore is its legal adviser.

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