Mylan readies its poison pill defences

Israel's Teva faces an uphill battle in its $40bn takeover pursuit of rival generics drugmaker Mylan, thanks to recent corporate governance changes by the US-listed company designed to complicate an unsolicited approach.

Mylan, which moved its domicile to the Netherlands this year, finalised a powerful poison pill defence in early April that allows the issuance of preferred shares to a Dutch foundation in the event of a hostile bid.

The move came as speculation of a possible Teva bid for Mylan was rife and just days before Mylan unveiled its own unsolicited $28.9bn offer for generics drugmaker Perrigo.

Perrigo rejected Mylan's offer on Tuesday. Mylan has yet to respond since Teva unveiled its offer, though the company did pre-emptively dismiss the logic of a deal with Teva last week.

Poison pill strategies differ depending on a company's legal jurisdiction and come in various forms.

Though listed and run out of the US, Mylan moved its domicile to the Netherlands through a $5.3bn deal last year to acquire parts of the generic drug business of Abbott Labs. The manoeuvre was intended to help Mylan escape US corporate tax rates.

Dutch law is somewhat unique to the rest of Europe with respect to anti-takeover measures as it allows companies to adopt poison pill type structures.

In most other European countries, the UK principle of a board remaining passive in a takeover situation applies. Thus, many boards in Europe cannot adopt poison pills as defensive measures.

Mylan has put in place a poison pill that is customary in the Netherlands, involving the formation of an independent foundation, which is known as a 'stichting'.

Under the terms, the foundation can exercise a call option agreement set up between it and the company that would dilute the voting rights of the company's ordinary shareholders.

The foundation has the right to exercise the option if it determines it is in the best interests of the company and if it allows the company's management to explore alternative scenarios.

Pieter Bouw, a former president of Dutch airline KLM, was named as the chairman of the foundation by Mylan. Mr Bouw was part of a foundation that intervened and prevented Carlos Slim's €7.2bn takeover attempt of Dutch telecoms company KPN.

One person familiar with the use of Dutch foundations as a takeover defence said that it is clear in Dutch case law that its use can only be temporary and it is not allowed to be used permanently to deter a bidder.

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