The collapse of two high-profile hostile takeover bids within a week signals that target companies will fight tooth and nail against what they see as low-ball bids. But while Mylan-Perrigo and, more recently, Horizon-Depomed did not come to pass, perhaps in future those being pursued will be forced to lower their expectations in line with the current market.
Mylan’s attempt came down to the wire last Friday, when a hostile bid that had gone to Perrigo investors was rejected by them. Depomed, meanwhile, did not get that far, instead getting Horizon’s offer blocked in court before the latter gave up and withdrew. Defensive moves seem to be becoming more common – the low testosterone pill developer Lipocine has adopted a “poison pill” strategy, though that came without an apparent buyer in sight.
But such tactics might not be necessary, at least right now – Valeant, one of the biggest buyers of speciality assets, looks to be out of action for a while after the Philidor controversy (Valeant’s containment strategy, October 30, 2015).
However, Valeant is not the only potential acquirer. Pfizer, currently busy with its bid for Allergan, is not shy when it comes to striking deals, although its chief executive, Ian Read, still doubts that there are too many bargains to be found.
“I think it's been a readjustment in stock prices; I'm not sure yet there's been a readjustment in what investors and the leaders of these companies believe their company may be worth in a transactional situation,” he said when the Allergan attempt went public (Pfallergan opens a window of opportunity for deal bankers, October 29, 2015).
And this is at the root of the issue: before the recent stock market correction companies had perhaps been inclined to believe the market hype, and now might still be unable or unwilling to accept lower, possibly more realistic, valuations. How long target companies' investors continue to take this view could determine the success of future takeover attempts.
Takeover appetite does not seem to be dying down, and one factor driving this is that those not buying risk being snapped up themselves. Mylan itself had been a target of Teva, while Baxalta is said to be looking for deals to fend off Shire.
So Perrigo and Depomed remain independent, for now, but no mid-sized companies can be said to be entirely safe from the M&A chain either.
Depomed’s share price dropped 4% in early trading today, hardly a ringing endorsement of its strategy to go it alone. Perrigo, meanwhile, has been on the rise since last Friday, but it is well off the highs it reached when Mylan first made its offer in April.
If larger groups continue to pursue acquisitions the valuation gap will prove to be a sticking point only as long as target companies' investors continue to have overblown expectations. The Perrigo case showed that hostile takeover attempts still hold little chance of succeeding, but potential acquirers will hope that something gives sooner or later.