BioPharm Insight: Perrigo Reconsiders Big Deals | FTI Consulting

BioPharm Insight: Perrigo Reconsiders Big Deals, Mylan Good Target, Bankers Say

Strategic Communications | Bhavna Kaul, Kimberly Ha and Olga Oksman (BioPharm Insight)

March 14, 2014

Tom Crawford and Barbara Ryan

A panel of healthcare and financial experts — including Strategic Communications’ Tom Crawford and Barbara Ryan — explores the dynamics driving life-science investment decisions and sector transactions surrounding the segment’s Life Sciences Investor Survey IV.

Perrigo’s (NYSE:PRGO) balance sheet allows for more transactions, and it has a long-term view on acquisitions, CFO Judy Brown said on a FTI Consulting [Strategic Communications] panel on Thursday.

The executive said that analysts and investors have asked the company if it would do a deal in the double-digit billion dollar range. She responded: “We are amenable to all opportunities as they approach us.”

A merger between the Ireland-based generics firm and peer Mylan (NASDAQ:MYL) would be a good combination, said two industry bankers, who added that the idea of a tie-up between the two pharmaceutical companies often gets batted around in the investment banking community.

When asked whether a merger of equals between Mylan and Perrigo could happen, an industry source said: “Something like that personally would not surprise me.” A spokesperson for Mylan did not return a request for comment.

If a deal is ever reached, it would effectively be a merger-of-equals with a small premium, the first banker said, who added a possible transaction may require divestitures to appease regulators. Mylan has market cap of around USD 19.3bn and Perrigo’s is around USD 22bn.

With Actavis (NYSE:ACT) planning to acquire Forest Labs (NYSE:FRX), the list of targets amongst the top five generics companies has shrunk, the first banker said. Sandoz, part of Novartis (NYSE:NVS), Teva (NYSE:TEVA), Mylan and Perrigo round out the five after Forest. The same banker said Sandoz and Teva cannot be acquired and with Actavis acquiring Forest, Mylan is left as standalone firm.

All five firms have talked about combinations with each other at different points in time, as any of these combinations would be synergistic and a good fit, the first banker said.

Perrigo, with its domicile in Ireland, is set up to do deals, the second banker said.

Last year, the company merged with biotechnology company Elan in a USD 8.6bn deal that allowed to move its domicile to Ireland, which has a lower tax base than the US. It took on considerable debt to fund the transaction.

CEO Joe Papa said in early February that Perrigo was likely to hold off on large deals until it had reduced its debt, according to the Irish Times.

If Perrigo does launch a large deal, the first banker said it will have to ensure the transaction is not viewed by the IRS as part of a continuing transaction with the Elan merger. Consequently, any talks with a future target would have had to start after the Elan deal closed in December, this banker said.

Under IRS inversion rules, the foreign target in a tax inversion transaction has to own 20 [percent] of the pro-forma entity. Numerous pharma companies have been exploring inversion deals like Perrigo’s, this news service has previously reported.

Posted with permission from BioPharm Insight. Copyright ©2014. All rights reserved.

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