Could a 'creative deal' between Perrigo, Amneal help reinvent both struggling businesses?

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Could a Perrigo-Amneal merger help both businesses escape their troubled pasts? (Pixabay)

With a spinoff for its prescription business on the ropes, Perrigo is treading water in its plans to reinvent its flagging business. Could a merger with another struggling drugmaker—à la Pfizer and Mylan—be the cure?

A “creative deal” between Perrigo and Amneal could bring up to $1.5 billion in cash to the Irish pharma as it works to back away from a disastrous stock price plummet in recent months, according to RBC Capital Markets analyst Randall Stanicky.

In a Sunday note to investors, Stanicky outlined four possible options for Perrigo as it looks to an uncertain future for its prescription business. Earlier this month, the drugmaker opted to postpone its spinoff plans as pricing pressure threatened to upend a branded OTC business that would be left behind by a split.

A generics merger with Amneal—which has recently faced a troubled road of its own—would help both companies diversify their portfolios and leave the remaining Perrigo prescription business with serious cash flow to weather the storm, Stanicky said.

RELATED: Perrigo delays prescription split after OTC business falls flat

A merger of that magnitude could mirror the recent deal between Mylan and Pfizer’s Upjohn unit, creating a potential $20 billion behemoth. Stanicky pointed to Pfizer’s $12 billion cash influx in the merger—and a 48% stake for Pfizer shareholders in the new company—as a positive example for Perrigo.

That said, while the merger might be of interest to Perrigo, Stanicky acknowledged the most likely road would involve the drugmaker holding on to its generics business and riding out the storm.

“This doesn't solve the goal of turning (Perrigo) into a consumer self-care pure play,” Stanicky noted. “But market realities may necessitate this.”

Stanicky said holding on to the business would limit the drugmaker’s cash flow and take away opportunities for bolt-on additions to the existing business. Stanicky also ruminated on a possible sale of Perrigo’s prescription business or a reconsidered spinoff but called both options “unlikely” given market pressures.

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