Mylan independence from Teva's embrace comes with a price

By Bill Berkrot

(Reuters) - Generic drugmaker Mylan NV won a reprieve on Monday from its unwanted suitor, Teva Pharmaceutical Industries, but now faces an uphill battle to make its own acquisition as its biggest rival just got bigger.

Teva (TEVA.N) announced a $40.5 billion deal for the generic assets of Allergan Plc (AGN.N) after an unsuccessful three-month attempt to bring Mylan (MYL.O) to the table.

Mylan, whose shares fell 14.5 percent, said it would continue its own unsolicited pursuit of Irish drugmaker Perrigo Co (PRGO.N), a maker of over-the-counter consumer and nutritional products and generic topical medicines.

"In terms of a huge deal to really bring them up to the next level, it's going to be pretty hard to find. Perrigo is one of the few remaining assets out there," said Morningstar analyst Michael Waterhouse.

Other industry analysts expect Mylan will have to raise its $34 billion offer for Perrigo, and if that doesn't work, try to keep growth aloft with smaller deals.

"They need to land Perrigo. If they do land Perrigo they'll have better capacity to do more deals," said Umer Raffat, analyst at Evercore ISI.

The generics industry has already seen several waves of consolidation due to the low profit margins for manufacturers in a highly competitive business. A new wave of acquisitions among drug distributors, pharmacies and health insurers is expected to bring new pricing pressure to bear on the generics industry.

Israel-based Teva, already the largest generics maker, will benefit from even stronger economies of scale. Allergan's generics business represents products that had belonged to Actavis Plc, until the two companies combined in March.

Several other major generics players have already been bought by rivals. Pfizer (PFE.N) recently struck a $15 billion deal to buy Hospira (HSP.N), essentially taking the largest seller of generic injectable drugs off the market.

Other remaining takeover targets include London-based Hikma Pharmaceuticals (HIK.L), which has a large line of injectable generics and presence in emerging markets, and Akorn Pharmaceuticals (AKRX.), with a diverse line of generics and animal health products. Some Indian generic drugmakers may also be up for grabs, analysts said.

Hikma, which was founded in Jordan, has a market value of about $6.4 billion and New Jersey-based Akorn about $5.2 billion.

Mylan used everything in its arsenal to keep Teva at bay, including open letters disparaging Teva's stock and its management, and a poison pill defence employing Dutch takeover laws. The former Pittsburgh-based company had reincorporated in the Netherlands to take advantage of lower taxes.

"They got what they wanted with no deal. It's probably not a surprise to them that their stock would see short-term selling pressure," said BMO Capital Markets analyst David Maris.

Mylan on Monday called a special meeting of its shareholders for Aug. 28 to vote on the proposed Perrigo acquisition. Mylan and Perrigo did not return calls seeking comment.

(Reporting by Bill Berkrot; Editing by Leslie Adler)