There's just over two weeks left until Mylan's ($MYL) shareholders vote on its proposed hostile takeover of Perrigo ($PRGO), and the Irish target is using the time to meet with shareholders of both companies. Right now, its leaders feel "good about where they stand," according to Bernstein analyst Ronny Gal--but there are some question marks hanging over them, too.
Perrigo is "reasonably sure" that if Mylan does proceed, it won't get the 80% of shares it needs to seal a deal--though "some of the large shareholders are 'holding their cards close to their vest,'" execs admitted to Gal.
And if Mylan garners between 50% and 80%, things will get stickier. That would lead "to eventual acquisition of Perrigo by Mylan," Gal wrote to clients on Tuesday, but Perrigo insists it would "also result in more significant value destruction."
Mylan, for its part, disagrees. Its plan, if it hits between 50% and 80%: Once Mylan gets the majority of Perrigo shareholders to tender their shares, it can extend the tender for 60 days, giving those not wanting to own a minority subsidiary a chance to make a move. If the remaining Perrigo shareholders don't take the bait, Mylan will run the companies separately, letting Perrigo's stock "languish … allowing Mylan to buy the stock on the cheap," Gal wrote. And as Mylan told him, once it gets board control, it'll "be able to obtain the synergies despite the separation."
|Perrigo CEO Joseph Papa|
If that happens, though, "Perrigo senior staff will likely leave," Gal pointed out, and they cautioned that "Mylan's experience with generics will not translate effectively to store brands." As CEO Joseph Papa told Gal, he and his team work well together, and he "has no plans of retiring"--meaning they could potentially all end up exiting together and starting another venture.
Meanwhile, Perrigo has options to "increase its intrinsic value," Gal wrote--a la Allergan ($AGN), which did some major cost-cutting when it was under siege from Valeant ($VRX) last year. And as the Dublin drugmaker's managers told Gal, they think "more capital return to shareholders is an 'intriguing' concept."
And if Mylan doesn't come away with its prize? It'll survive, CEO Heather Bresch told investors last week. "We like Perrigo, but we don't have to have Perrigo," she said on the company's Q2 conference call.
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