Did Mylan Win By Losing Perrigo?

Nov. 13, 2015 1:09 p.m. ET

Did Mylan Win By Losing Perrigo?

By Johanna Bennett

Mylan’s (MYL) failed hostile takeout bid for rival generic drug maker Perrigo (PRGO) is hitting the two stocks in drastically different ways.

Mylan, the supposed loser in this months-long fight, surged more than 13% to a recent $49 as investors rejoiced at the elimination of the dilution expected from Perrigo acquisition and the reversal of event-driven short positions.

But RBC Capital Markets analyst Randall Stanicky says that Mylan remains on the hunt.

While we expect short term strength in the stock it’s important to consider that ~19% is still held by ABT and TEVA and will ultimately come back to market. The message from MYL is that it is prepared to pivot to other assets, that there are several other assets available and that it has deal capacity with the capital structure levered at only 2x. Two additional turns is ~$6 billion in capacity plus possible ability to lever up a target and use of equity. We think ENDP, SNY’s Merial / EU generics business, and potentially PFE-generics could be interesting with “growth” a primary focus.‎ The other important question for management will be whether it still plans to pursue corporate governance changes.

Perrigo, meanwhile, dropped 7% to a recent $146. That’s a no brainer given how far the stock climbed (at one point passing the $200 mark) after Mylan made its initial offer in early April. And having rejected all of Mylan’s offers as “too low,” Perrigo will be under pressure from shareholders to deliver returns.

As RBC’s Stanicky writes:

PRGO likely to see a pull-back into the low $140′s but we see the stock settling in the $150 to $155 range. The removal of the MYL bid and impact from the exit of event driven position will drive initial weakness but we think the stock can settle not far from currently levels…If we assume PRGO can hold its historical trough level of 16.3x (-1 standard deviation from historical mean) then on the $9.45 2016E guidance outlook (including buyback) we get an implied value of $154 or -2% from current levels. Importantly, while the stock may pull back initially, we think there is significant fundamental demand in the $140′s which should provide some support for the stock. We expect PRGO’s message to be that now that it is unencumbered from the MYL deal process it is free to pursue several potential opportunities.

 

You already posted this on the Mylan board.

 

Yeah, since the CEO left the stock has tanked.

 

Company Sold!