Exclusive - Perrigo under shareholder pressure to explore sale: sources

By Carl O'Donnell

(Reuters) - Some of Perrigo Company Plc's (PRGO.N) top shareholders have asked the Irish generic drugmaker to explore a sale, hoping for an alternative to Mylan NV's (MYL.O) roughly $25 billion hostile bid, according to people familiar with the matter.

The requests, made by shareholders representing at least 6 percent of Perrigo's equity capital, represent a challenge to Perrigo's defence tactics, which have so far been limited to trying to convince investors of the merits of its standalone strategy.

The calls for a broad sale process also show how many investors are keen to ride the tide of deal making sweeping the healthcare sector. The industry has seen a record $460 billion in mergers and acquisitions so far this year, an increase of 80 percent over the last year, according to Thomson Reuters data.

"The board is not opposed to completing a deal or further maximizing value for our shareholders, but it is opposed to supporting this bad deal," Perrigo Chief Executive Joseph Papa told Reuters in an interview. He would not comment on whether Perrigo would explore a sale. Mylan declined to comment.

Some of Perrigo's shareholders view Novartis AG (NOVN.VX), Sanofi SA (SASY.PA), Proctor & Gamble Co (PG.N) and Colgate-Palmolive Company (CL.N) as potential suitors for Perrigo, according to the sources.

Mylan, Novartis, Proctor & Gamble, and Sanofi declined to comment. Colgate-Palmolive did not respond to a request for comment.

For Mylan, the deal is an opportunity to become one of the largest purveyors of generic and over the counter medications, with annual revenues in excess of $15 billion, at a time when consolidation among insurers and pharmaceutical benefits managers is putting pressure on the prices of generic drugs.

Mylan launched a tender offer earlier this month to purchase Perrigo stock directly from shareholders in exchange for $75 in cash and 2.3 Mylan shares for every share they tender.

The offer has declined significantly in value since Mylan’s initial April 8 proposal. Mylan's share price has dropped by more than 30 percent since late July, partly due to its rejection of a $40 billion bid from Israeli generics drug maker Teva Pharmaceuticals (TEVA.TA), which went on to buy Allergan Plc's (AGN.N) generic drug business for $40.5 billion.

Perrigo's board has recommended shareholders do not tender their shares to Mylan, but is restricted by Irish law from blocking the offer.

ROAD SHOWS

In response to the offer, Perrigo's management team has embarked on extensive road shows, meeting with numerous shareholders to convince them not to tender, the sources said.

During these meetings, Perrigo has claimed that it has received interest from potential buyers other than Mylan, the sources added. The company has not disclosed any step so far that would indicate it is exploring such an interest.

Perrigo has primarily stressed that Mylan's offer does not adequately compensate shareholders for its "exceptional" standalone growth prospects, including $1 billion in new product launches over the next three years, a growing European consumer healthcare platform, and potential upside from future acquisitions.

To be sure, some of Perrigo's shareholders, including a number who plan to tender if Perrigo does not offer an alternative, have reservations about becoming Mylan shareholders, the people said, citing corporate governance concerns raised by Mylan’s rejection of Teva.

However, a number of shareholders feel the structure of Mylan’s proposal could compel even hesitant shareholders to tender in order to avoid becoming a marginalized minority in a Mylan-controlled company, the people said.

Shortly before the bid, Mylan relaxed its conditions for closing the deal from the 80 percent majority threshold that is customary in Ireland to a simple majority, which could potentially lead to a situation in which Mylan is the controlling shareholder of an independent Perrigo.

About 20 percent of Perrigo's shareholder base is comprised of hedge funds with shorter time horizons, which may be more likely to tender, according to one of the sources. This would give Mylan a head start as it tries to reach the 50 percent threshold.

(Reporting by Carl O'Donnell in New York; Editing by Chris Reese and Lisa Shumaker)