Generic drugmaker Mylan offers $29 billion for Perrigo

By Bill Berkrot

(Reuters) - Generic drugmaker Mylan NV (MYL.O) has offered to buy Perrigo Co Plc (PRGO.N) for about $29 billion (19.5 billion pounds) in cash and stock, a deal that would make Mylan a major player in over-the-counter consumer products and extend its geographic reach.

Mylan's disclosure on Wednesday set off fresh speculation in an already hot market for healthcare deals. Some industry watchers questioned whether Mylan sought to fend off unwanted takeover advances from larger rival Israel-based Teva Pharmaceutical Industries (TEVA.N). Others said the offer could spur competing bids for Perrigo.

Mylan offered to buy the Ireland-based company for $205 per share. That represents more than a 25 percent premium over Perrigo's April 3 closing price, the last trading day before Mylan made its offer in an April 6 letter to Perrigo Chief Executive Joseph Papa.

Perrigo shares initially jumped well above the offer price to $215.72, but closed up 18.4 percent at $195, indicating some investor scepticism that the deal will happen. Mylan shares rose 15 percent to $68.36, while Teva's U.S.-listed shares gained 3.5 percent.

"People think that this is going to flush out a Teva bid for Mylan," said Stifel Nicolaus analyst Annabel Samimy. "If that's the case, then this bid for Perrigo is not going to go through."

She noted that Mylan provided very few details of the offer, including how much would be cash and how much in stock.

Mylan Executive Chairman Robert Coury said the two companies have held several discussions about a proposed merger. Perrigo confirmed that it had received an unsolicited offer from Mylan and said its board would meet to discuss the proposal.

Perrigo, with a large and attractive portfolio of OTC consumer products, infant formulas and a line of generic topical pharmaceutical medicines, has long been seen as a takeover target.

Combined, Perrigo and Mylan had sales of about $15.3 billion in 2014.

"What will be interesting to see is if we end up in a bidding war," said Morningstar analyst Michael Waterhouse. He suggested Teva, the world's largest maker of generic drugs, and serial acquirer Valeant Pharmaceuticals International (VRX.TO) as potential rival bidders for Perrigo.

Samimy mentioned Novartis's (NOVN.VX) Sandoz generic unit as a possible Perrigo bidder. "They've said in the past that they need to get bigger or get out."

Teva, Novartis and Valeant all declined to comment on the speculation.

BIGGEST DEAL OF THE YEAR?

The proposed $29 billion deal would the largest in the healthcare sector announced this year, ahead of AbbVie Inc's (ABBV.N) nearly $21 billion deal for Pharmacyclics Inc (PCYC.O) and Pfizer Inc's (PFE.N) planned $16.7 billion purchase of Hospira Inc (HSP.N), according to Thomson Reuters data. (For a graphic, see: http://link.reuters.com/waf54w)

It is further evidence that the appetite for healthcare acquisitions continues unabated. Generic drugmakers are looking to get bigger and gain access to product lines with higher profit margins and pharmaceutical companies seek to bolster their development pipelines by acquiring potentially lucrative speciality medicines, such as for cancer and rare diseases. Medical device makers have also sought to expand product portfolios through acquisitions.

Several potential deals in which U.S. healthcare companies sought to buy overseas assets to benefit from lower tax rates were shelved in 2014 after the U.S. Treasury issued tougher rules on such purchases.

AbbVie, for example, scuttled a $55 billion purchase of Ireland's Shire Plc (SHP.L). But both companies have since pursued new deals. AbbVie won a three-way bidding war for Pharmacyclics and Shire bought NPS Pharmaceuticals for more than $5 billion.

Mylan has been at the centre of deal speculation as Actavis, one of its main rivals, swallows up companies to expand beyond generic medicines, including a $67 billion purchase of Botox-maker Allergan last year.

Just last month, Mylan CEO Heather Bresch raised the prospect of another "material transaction" by the end of 2015.

"Assuming Mylan can get to the finish line with this, they'd be a heck of a lot bigger in Europe," said CRT Capital Group analyst Timothy Chiang. Perrigo recently bulked up with a $4.5 billion purchase of Belgium-based OTC drugmaker Omega Pharma.

Both Mylan and Perrigo had previously undertaken so-called inversion deals to gain lower tax rates.

Mylan's $5.3 billion acquisition of Abbott Laboratories' (ABT.N) overseas generic drugs business allowed it to move its corporate headquarters to the Netherlands. In 2013, Perrigo bought Irish drugmaker Elan for $6.7 billion and rebased from Michigan to Ireland.

(Additional reporting by Caroline Humer in New York and Ankur Banerjee in Bengaluru; Editing by Don Sebastian, Bernard Orr)