Is Teva A Better Target For Mylan Than Perrigo? 2 Analysts Share Their Thoughts

Mylan NV (NASDAQ: MYL) said Wednesday it has offered to acquire rival Perrigo Company (NYSE: PRGO) for $28.9 billion or $205 a share

Umer Raffat of Evercore ISI had a chance to chat with Mylan’s management recently.

The Mylan-Perrigo accretion “looks something like 10-15% depending on how you run it,” Raffat said. It is still not clear if this is a hostile bid, but his conversation with Mylan’s management suggests it may not be. “I understand that given Irish takeover law limitations, MYL had to make this announcement public.”

Shares of Perrigo spiked on the news, up more than 18 percent at $195.

Running The Math On Mylan-Perrigo

Although proportions are not yet clear, Raffat guesses that at least 50 percent of the transaction should be paid in cash. Synergies are yet undisclosed, but the analyst suspects they may be perhaps 60 percent or more on SG&A and perhaps a third on R&D.

Is The Teva-Mylan Combination Superior To Mylan-Perrigo?

Rumors about Mylan being interested in buying Teva Pharmaceutical Industries Ltd (ADR) (NYSE: TEVA) have also circulated. “At surface, EPS accretion is higher on TEVA-MYL,” Raffat said. “But again, that would depend on the cash: stock mix. And again, Mylan’s recent actions perhaps suggest limited interest in that combination.”

“From TEVA's end, it is unclear to me if there was widespread consensus internally on MYL. From MYL's perspective, PRGO deal is about accretion AND about (perhaps) an increase in multiple … on the other hand, TEVA-MYL deal is only about accretion.”

Other Comments

BMO analyst David Maris also commented on the Mylan-Perrigo deal. As reported by Bloomberg, he said, “Mylan hasn’t made compelling argument for how it will add value through Perrigo deal outside of possibly ‘modest’ cost synergies.”

He thinks Mylan’s offer may be “unsolicited or perhaps hostile bid,” and it reminds him of Valeant’s unsolicited bid for Allergan.

Maris added that he wouldn’t be surprised if Perrigo “pushes for higher valuation or if others bidders emerge.”