Mylan shareholders face big M&A-related taxes, especially if Teva's bid succeeds

Last year, Mylan ($MYL) forked over millions to cover its top execs' tax liability on its deal with Abbott Laboratories ($ABT), which shifted its tax domicile to Europe. Investors weren't so lucky--and now, they may take another tax hit if Mylan joins up with suitor Teva ($TEVA).

If the two generics rivals do link arms, the transaction would likely trigger a hefty new capital gains tax for Mylan shareholders who stuck with the company after the inversion, The Wall Street Journal notes. And while they'd get cash from the transaction to cover their taxes, if a deal closes before the end of February 2016--which Teva has pledged it would--that cash would be considered a short-term capital gain, taxed similarly to ordinary income, with a top rate of 43.4%.

That would come on top of long-term capital gains taxes the inversion deal triggered for individual shareholders, the Journal reports. Those who held Mylan shares for at least a year are on the hook for taxes up to a maximum rate of 23.8%.

They didn't get the same cushion as Mylan's higher-ups, the top 5 of whom collectively received tens of millions to cover some of the taxes related to the Abbott deal. Last December, the drugmaker said it would shell out $32.5 million ahead of schedule to help its top managers avoid excise taxes meant to discourage companies from relocating to Europe. Mylan also said it would pay $20.5 million to cover taxes the execs would actually owe.

Mylan CEO Heather Bresch

That meant CEO Heather Bresch took home $10.5 million worth of accelerated equity and a tax reimbursement of $5.3 million, and Chairman Robert Coury netted about $10.7 million in early equity payouts, along with more than $3 million to cover the excise tax.

According to Bresch and Coury, though, Mylan investors have nothing to worry about when it comes to a Teva tie-up. So far, they've vehemently refused the Israeli company's $40-billion-plus offer, and recently, they told Bernstein analyst Ronny Gal they'd make sure a hostile deal took years. Instead, they've been touting the benefits of a marriage with Perrigo ($PRGO)--a company that itself has rejected Mylan multiple times.

What about investors who like the idea of a Teva merger? The way Mylan management sees it, they'll come around. "Investors will have to choose between a bird at hand (Perrigo deal) and a putative Teva deal two years down the road," Gal wrote. "They will be in a 'tough place' and choose Mylan's deal," the company execs figure.

- read the WSJ story (sub. req.)

Special Reports: Top 10 generics makers by 2012 revenue - Mylan - Teva | Pharma's top 10 M&A deals of 2014 - Mylan/Abbott Laboratories established products

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