Teva Pharmaceutical Industries Ltd. TEVA announced that it has completed the acquisition of 4.61% of all of Mylan’s MYL outstanding shares. The acquisition of a 4.61% interest in Mylan will enable Teva to commence proceedings before the Dutch Enterprise Chamber, if required.
Meanwhile, Mylan has its eyes set on Perrigo Company PRGO. In its latest offer, Mylan has proposed to acquire Perrigo for $232.23 per share in a combination of cash and stock.
Teva plans to limit its aggregate holding in Mylan, prior to the latter’s extraordinary general meeting on the Perrigo transaction, if it is held before Aug 31, 2015, to less than 5% of the outstanding shares.
We note that Mylan’s board has unanimously rejected Teva’s acquisition proposal of Mylan for $82.00 per share comprising approximately 50% cash and 50% stock. However, Teva’s board and management are committed to follow through the transaction as early as possible.
The addition of Mylan’s products and pipeline candidates will be complementary for Teva. The combined company would have a pipeline of over 400 pending abbreviated new drug applications including more than 80 first-to-files in the U.S. Additionally, the enlarged company will have a specialty pharmaceuticals business of $10 billion with strong positions in multiple sclerosis, respiratory, pain, migraine, movement disorders and allergy therapeutics.
Teva expects the acquisition to be accretive to earnings with the deal achieving mid-teens accretion in the first year and approaching 30% by the third year. Teva expects to generate cost synergies and tax savings of approximately $2 billion annually by the third year of closing the deal.
Our Take
We are positive on the Teva-Mylan deal considering the potential synergies and earnings accretion. We note that the U.S. Court of Appeals for the Federal Circuit has again found Teva's patent (Patent No. 5,800,808) for its blockbuster drug, Copaxone, to be invalid as indefinite. With several generic manufacturers including Mylan looking to bring their generic versions of Copaxone to the market, accelerating growth through acquisitions looks good.
Currently, Teva carries a Zacks Rank #3 (Hold) while Mylan holds a Zacks Rank #4 (Sell). A better-ranked stock in the health care sector is Valeant Pharmaceuticals International, Inc. VRX carrying a Zacks Rank #1 (Strong Buy).
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