Israel's Teva offers $40.1bn for US drugmaker Mylan

Teva, the largest generic drugmaker in the world, set the stage for the biggest pharma deal of 2015 by launching an unsolicited $40bn offer to buy its nearest rival Mylan.

If consummated, the takeover would underscore the frenzied pace of mergers and acquisitions in the pharmaceutical industry. In the first three months of this year, 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.

Any takeover would also torpedo Mylan's own dealmaking efforts. Earlier this month, it made an unsolicited $28.9bn offer for Perrigo, an Ireland-based maker of cough medicines and allergy remedies.

Combining Israel-based Teva with Mylan would create a generic drug behemoth with annual revenues of about $30bn and a market capitalisation of about $100bn, meaning any tie-up could draw intense scrutiny from antitrust regulators and global healthcare systems.

Teva is Israel's biggest company by far and the $40bn acquisition, if it succeeds, would be the biggest cross-border deal involving an Israeli company. Teva did not say where it expected the combined group to be headquartered; a person working on the deal said it was too early to comment.

Last week, Mylan's executive chairman, Robert Coury, dismissed takeover interest from Teva. "A combination is without sound industrial logic or cultural fit," he said. "There would be significant overlap in the companies' businesses and we believe that it is unlikely that any such combination could obtain antitrust regulatory clearances."

In a letter sent to Mylan's board of directors on Tuesday, Erez Vigodman, chief executive of Teva, said he was disappointed that Mr Coury had "prematurely addressed" the combination of the two companies. He added that he was confident the deal could win the approval of antitrust authorities.

The Israel-based group pitched its offer for Mylan at $82 a share, with roughly half in cash and half in stock. That represented a 37.7 per cent premium to the share price of Mylan on April 7, the day the company announced its unsolicited offer for Perrigo. A person working on the bid described it as a "full and final offer".

However, Ronny Gal, an analyst at Bernstein, said he expected Mylan's management to hold out for a bid closer to the $90 a share level. Umer Rafat, an analyst at Evercore ISI, said he thought the offer was a starting point, and that Teva was prepared to go higher.

The combination of the two companies would save about $2bn a year through a mixture of cost cutting and tax savings, according to Teva. A person close to the group argued the tie-up of two generic drugmakers was a better fit than Mylan's proposed acquisition of Perrigo, which makes decongestants and antihistamines that can be sold over the counter in drug stores.

If combined, over 40 per cent of Teva-Mylan's revenues would come from so-called "specialty" drugs rather than low-margin copycat pills, underscoring the trend of generic makers moving into more profitable businesses.

The Israeli group launched its offer just days after the US drugs watchdog approved a generic version of Copaxone, a multiple sclerosis drug that last year accounted for $3.1bn of Teva's $15.1bn in revenue.

A person close to Mylan said the loss of the drug's exclusivity meant its stock would be less attractive to Mylan's investors.

Teva said the combination would significantly boost earnings, with a "mid-teens" increase in earnings per share in the first year, and almost 30 per cent in the third year. It said it thought the transaction could be completed before the end of the year.

There has been an increasing number of hostile takeover approaches in a variety of sectors as cheap financing and a shrinking pool of assets push companies to pursue targets more aggressively. Historically, hostile deals are high risk and only about a fifth of them end up being successful, according to bankers who specialise in unfriendly takeovers.

A planned takeover by PotashCorp of Saskatchewan of Israel Chemicals (ICL), Israel's second-largest company by sales, was vetoed in 2013 by the Israeli government, which owns a golden share in ICL.

The Israeli state has no such share in Teva, but the company, with roots stretching back to the Zionist period predating Israel's foundation in 1948, is seen as a national champion, and it has come under fire in the past for the amount of tax it pays in Israel.

Ori Hershkovitz, founder of Nexthera Capital, a pharmaceutical consultancy, said it was unlikely that Teva would move its headquarters away from Israel. "Israelis are very touchy when it comes to the company," he said.

Mylan did not immediately react to Teva's offer and did not respond to requests for comment.

Mylan shares were up 7.6 per cent in early New York trading. Teva was up 2.2 per cent in Tel Aviv.

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