Summer dealmaking talks turn to autumn hostilities

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Freed of the immediate threat of a takeout by Teva, Mylan has now given an ultimatum to the management of its own target, Perrigo: come quietly by next Monday, or things could get ugly.

Another speciality pharma takeover that has turned hostile, Horizon Pharma’s pursuit of Depomed, looks like a deal that should already have been concluded. The need to get bigger or get bought continues to drive M&A action in biopharma’s middle tier, though an uptick in hostile approaches hints at disagreement over the sustainability of valuations.

No more Mr Nice Guy

Mylan shed its Mr Nice Guy approach, so to speak, and says it will launch on Monday a $27bn hostile cash and shares offer for Perrigo shareholders to consider independently of board and management.

That Perrigo management has rebuffed all overtures so far indicates the majority shareholders’ views – and, given that Mylan has come off the boil along with the rest of the stock market over the summer, the current bid is unlikely to be any more persuasive.

This is probably true even if, as Mylan executive chairman Robert Coury claims, Perrigo shares plummet back to pre-offer levels in the event of failure. Mylan might very well know this to be true, and announcing a hostile bid could be a last-ditch effort to bring Perrigo to the negotiating table at last.

The offer is worth $75 cash and 2.3 Mylan shares for every one of Perrigo, a bid that would make the target's shareholders owners of 40% of the combined company. Given the stance taken so far, it is unlikely that Perrigo's chief executive, Joseph Papa, will recommend that shareholders take the money.

Whether Mr Papa will agree to speak with Mylan before the hostile bid is initiated is a mystery. Beyond a negative recommendation, there is little he can do to stop the bid as defensive techniques such as shareholder rights plans cannot be used under Irish takeover law prohibitions against “frustrating” actions.

Whether an “anti-chain” M&A manoeuvre to increase Perrigo’s market capitalisation – such as a takeout of Meda’s US business, as recommended by analysts from BTIG – would count as a frustrating action is not clear, but if it is allowed it would not be surprising to see.

Depomed sees shrinking Horizon

Depomed, meanwhile, might be kicking itself that it has not already agreed to become part of Horizon after a long saga that seems to have revolved around getting a better price.

The latest all-stock offer of 0.95 Horizon shares per Depomed share is unchanged, but owing to fluctuations in Horizon’s stock its value has dropped from $33 per share at the end of July to a current $28.

This is not far off the current value of Depomed’s stock, but is a premium over Depomed’s share price of $20.64 on July 6, the day before Horizon went public with its bid (No end to speciality pharma acquisitions on Horizon, July 7, 2015).

Horizon is now appealing directly to Depomed stockholders and will be banking on their views being at odds with those of management, prompting the deal to be snapped up before its value falls any further.

Even Depomed’s board might be changing its tune. After rejecting all of Horizon’s other bids for not valuing it highly enough, it now says it will “carefully review and evaluate” the new offer before advising shareholders on its position within 10 days. A U-turn could leave investors wondering why the company did not say yes sooner.

But if Depomed does maintain its strong stance it will be up to Horizon to convince its investors; the offer is set to expire on November 6, but Horizon can extend it. If shareholders are keen to cash in it seems that Perrigo and Depomed will be powerless to resist their unwelcome suitors, though why this view should not be reflected by management is less clear.

Should Mylan and Horizon succeed, and management continue trying to make the most of overinflated valuations, we might see more such hostile takeover attempts in the future.

To contact the writers of this story email Jonathan Gardner or Madeleine Armstrong in London at news@epvantage.com or follow @ByJonGardner or @medtech_ma on Twitter

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