Case 2 Mylan takeover of Perrigo.docx - 122 3 TI:lE...

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122 3. TI-:lE CORPORATE TAKEOVER MARKET END OF CHAPTER CASE STUDY: MYLAN THWARTED IN HOSTILE TAKEOVER OF PERRIGO Case Study Objectives: To Illustrate How Institutional investors can impact corporate decisions Current strategies can limit future options Poor governance undermines shareholder value Hubris can derail good decision making Things looked good for Mylan NV, a leading generic pharmaceutical drug maker, midday on November 13, 2015, as the early results of the firm's campaign to acquire Perrigo appeared promising. The votes of more and more index fund shares supported Mylan's proposed takeover of Perrigo Co., a maker of store-branded generic drugs. This date marked the last day Perrigo shareholders could tender their shares, a process that had begtm with Mylan's initiation of a ten- der offer for a simple majority of Perrigo's outstanding common shares on September 15, 2015. Acceptance of Mylan's bid, initially valued at $26 billion and consisting of $75 in cash and 2.3 ne,:,v Mylan shares for each Perrigo outstanding, appeared to be in reach. In contrast, the Perrigo board of directors and management was nervous, as they had received support from the major- ity of their investors in Israel but were alarmed at the number of index fund votes in support of the takeover. But the heady feeling among Mylan's board of directors and senior management was soon to tw11 grim, By evening, Mylan's position appeared to weaken when a tally of votes by the national stock clearinghouse, Deposit Trust Corporation, showed that Mylan was short by about 18 million shares of the number needed to gain a controlling interest in Perrigo. Had they won control of the firm, Mylan reasoned they could implement a backend merger at a later date to "squeeze out" the shareholders who had been unwilling to tender their shares. Nearly all the major mutual funds supported Perrigo, with only Vanguard Group supporting Mylan. Other major mutual fund groups did not even vote, including Blackrock, State Street Global Advisers, and Fidelity Investments. Despite an aggressive marketing campaign to garner investor support, Mylan failed to convince enough investors that they would be better off owning shares in a combined Mylan/Perrigo company. In the end, Mylan was able to garner only 40% of Perrigo's outstanding common shares. Even though Mylan had promised to make certain changes to its questionable governance prac- tices immediately following its acquisition of Perrigo, the declining value of its shares made the Mylan shares less ath'active. Teva Pharmaceuticals' bid to acquire Mylan earlier in 2015 had inflated the value of Mylan's shares to reflect most of the anticipated premium. Mylan was using the inflated value of its shares to make a bid for Perrigo. When Teva later withdrew its offer, Mylan shares plum- meted, reducing the premium to Perrigo's share price from 34% when the offer was first made to less than 3%. Ultimately, concerns about the diminishing premium and Mylan's poor governance practices could not be overcome. Analysts on Wall Street also expressed a sigh of relief

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