Trade of the Day: Watch Mylan as It Battles for Perrigo (MYL)

Advertisement

Mylan (MYL) shares have been highly volatile lately following the company’s hostile takeover bid for Perrigo (PRGO), an Ireland-based company, which Mylan actually made a formal pitch for back in April at $205 a share in the cash-and-stock bid.

Trade of the Day: Watch Mylan (MYL) as It Battles for PerrigoMylan shareholders recently approved the deal, but Perrigo has already said that it is confident that shareholders would reject the “value destructive transaction,” citing a deal with MYL would dilute the earnings per PRGO stock.

Usually, the acquiring company will see its stock slip in a merger deal, while the takeover target sees its share price rise. This is not the reason I took this trade, but Mylan has to be careful that it doesn’t get into a bidding war.

Additionally, a familiar chart pattern has developed on MYL stock. Shares have formed a death cross, with the 50-day moving average closing below the 200-day moving average. Near-term resistance is at $52.50.

While the stock has recovered a bit since reaching a low of $45.50 on last Monday’s selloff, a move toward $47.50 would make for a nice bearish setup to play a possible breakdown to $45.

090215-Mylan-MYL

Even more exciting is the chance that the low $40s will come into play on a close below $45.50, as you can see from the three-year chart below.

090215-Mylan-MYL-2

Mylan will likely make a formal offer for Perrigo this month, but it faces other issues in getting a deal done. Under Irish merger laws, if less than half of Perrigo shareholders are willing to sell, Mylan would have to wait a year before making another possible bid. If more than 50%, but fewer than 80%, of Perrigo shareholders approve the deal, Mylan could sweeten the pot.

Another concern will be the battle to replace Perrigo’s board and consolidate the outstanding shares. Additionally, a higher bid offer would obviously cost Mylan more money and could impact the synergies that have been built into the acquisition.

This situation could create a drag on the shares and, with the deteriorating technical setup, bearish traders could target MYL stock to play a downside move in MYL.

InvestorPlace advisor Rick Rouse is offering a special free report, “The 5 Golden Rules of Options Investing,” that reveals his rules for options trading success that will help you make double- and triple-digit profits in the months ahead no matter what the market has in store. Just click here to read it right now. 

Whether you’re new to options or have years of experience, the trading advice Rick will share can help you lock in bigger gains, find new winning ideas, wring the risk out of your trades and become a more confident and successful options investor. Click here now to download your FREE copy of The 5 Golden Rules of Options Investing.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/09/mylan-perrigo-myl-stock-prgo-pharmaceutical-stocks/.

©2024 InvestorPlace Media, LLC