Mylan MYL and Perrigo Company PRGO jumped 14.8% and 18.4%, respectively, after it was announced that the former has made a proposal to acquire the latter.
As per the terms of the proposal, Perrigo shareholders would receive $205 per share in a combination of cash and stock. The transaction is valued at approximately $29 billion, which represents a premium of over 25% on Perrigo’s unaffected trading price as on Apr 3, 2015.
Perrigo confirmed that it has received the offer and stated that its board will deliberate on it.
What’s in it for Mylan?
The acquisition of Perrigo will add a robust suite of store brand over-the-counter (OTC) pharmaceutical products across several categories including analgesics, cough/cold/allergy/sinus, gastrointestinal and smoking cessation products to Mylan’s portfolio. Perrigo also has a presence in nutritionals and generics among others.
We note that Perrigo has also been aggressively pursuing acquisitions. Earlier this year, it acquired Omega Pharma, a leading over-the-counter health care company in Europe.
Mylan expects the Perrigo acquisition to fetch significant and meaningful synergies, which in turn would boost operating margins and be accretive to earnings. The combined company will have a strong presence in key developed and emerging markets. Based on 2014 numbers, pro forma sales of the combined entity will be approximately $15.3 billion.
Additionally, if the transaction goes through, we could see a rapid deleveraging as a result of substantial free cash flows, which will allow Mylan to invest in newer opportunities.
Our Take
The Perrigo acquisition will be a strategic fit for Mylan’s portfolio and should drive long-term growth. The combined company could become a leading generic and OTC player.
We note that Mylan has been constantly making acquisitions to expand its business. Earlier this year, the company announced its intention to acquire certain female health care businesses of Famy Care Limited, a privately held specialty women's health care company focused on generic oral and injectable contraceptives, intra-uterine devices, tubal rings and hormonereplacement therapies.
It is being speculated that other companies could also be interested in acquiring Perrigo and could out-bid Mylan.
The health care sector has been witnessing a flurry of mergers and acquisitions and licensing deals over the past few quarters. These deals show no signs of slowing down. Last month, Abbvie ABBV entered into an agreement to acquire Pharmacyclics PCYC for $21 billion.
Mylan carries a Zacks Rank #3 (Hold), while Perrigo is a Zacks Rank #2 (Buy) stock. Another well-ranked stock in the health care space is Valeant Pharmaceuticals International, Inc. VRX carrying a Zacks Rank #2.
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