Whispers have been circulating for weeks that an acquisition offer was coming. Official as of today — drug company Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is offering $40 billion for Mylan NV (NASDAQ:MYL).
The proposal, which works out to $82 per share of MYL stock, would be paid as a combination of cash and Mylan stock.
To be clear, Mylan hasn’t agreed to the Teva offer, which would ultimately be up to MYL shareholders anyway. Moreover, Mylan has already expressed doubts about Teva winning regulatory approval.
Still, the potential upside of this combination of drugmakers is worthy of a closer look.
Mylan Isn’t a Fan of the Idea
The timing of this proposal from Teva is no coincidence. A couple weeks ago, Mylan expressed interest in acquiring Irish rival Perrigo Company plc (NYSE:PRGO) for a cool $29 billion.
Rather than let that potential monster of a competitor materialize, Teva Pharmaceutical rushed to get an attractive offer on the table. In fact, the Teva offer of $82 per share of Mylan stock is explicitly contingent on Mylan quelling its bid for Perrigo.
And just for the record, Mylan isn’t particularly keen on the idea of being acquired. Mylan Executive Chairman Robert Coury has made it clear that MYL is “fully committed to its stand-alone strategy.”
Indeed, some have opined that Mylan began its Perrigo overtures — and swallowed a poison pill — specifically because it knew Teva Pharmaceutical was on the hunt.
Mylan has also added it believes the proposed merger would face major regulatory hurdles. Between each company’s existing portfolio of drugs as well as drugs in each pipeline, there’s a great deal of overlap. Mylan, in fact, has noted there’s so much overlap that regulators would fear allowing the two entities to become one.
On the other hand, what Mylan management expects and what owners of Mylan stock get may end up being two different things. If Teva wants Mylan bad enough and if Perrigo Company doesn’t take an offer from Mylan, there’s nothing other than a regulatory roadblock to prevent the onset of a hostile takeover … or even the beginning of a bidding war for Mylan stock.
Is Mylan Stock Worth $82 to Teva?
Regardless of how it may happen, the prospect of a combined Teva and Mylan is impressive.
The new company would generate about $30 billion in annual sales based on their existing portfolios. That figure doesn’t assume any synergies or cross-selling will occur. In reality, at least some cross-selling and synergies would take shape, upping that likely revenue figure.
The real upside, however, may come in the form of cost-savings where there’s overlap. JPMorgan estimates a union of Mylan and Teva could save more than $1 billion per year. Teva, meanwhile, says a merger of the two organizations would yield something closer to $2 billion in cost cuts.
For perspective, Mylan earned $929.4 million on $7.7 billion in sales last year. Teva earned $3 billion on revenue of $20.3 billion in 2014. The projected math says their combined profits would grow from $3.9 billion to at least $4.9 billion if the two organizations become one.
While the growth outlook is clearly compelling, the price might not be. Teva is offering a sum of more than 47 times Mylan’s 2014 net income, and last year was a fairly typical year for Mylan.
Then again, if it’s worth owning, one can expect to pay a premium for it.
Bottom Line for Teva Stock Owners
Although it was almost a bit smarmy of Teva to explicitly tell Mylan — and owners of MYL stock — that its offer to buy MYL at $82 per share was a better option than Mylan buying Perrigo, Teva Pharmaceutical is right in its assessment. That is, the cost-saving projections and synergy predictions are reasonable.
It’s still not a done deal, though, and it might not get done at the proposed terms.
Is Mylan simply playing hard-to-get as part of an effort to pump up the price of MYL stock? Nobody will ever really know.
After seeing Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) become the beneficiary of a bidding war and AstraZeneca plc (ADR) (NYSE:AZN) be vindicated for turning down a nice offer from Pfizer Inc. (NYSE:PFE), though, it would be surprising if owners of MYL stock actually took this initial offer from Teva.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
