Mylan’s Objections to Teva’s Offer
Mylan Emphatically Rejects Teva's Offer (Part 2 of 3)
Mylan’s letter to Teva lists some big objections
Mylan’s (MYL) rejection letter to Teva (TEVA) can be found on Mylan’s website. This is not your typical rejection letter. It lays out in detail the major objections to the transaction.
The first one is price—Mylan isn’t going to look at a two-digit offer. “Our Board will certainly not consider engaging in discussions to sell the Company unless the starting point of the discussions is significantly in excess of $100 per share.” Given Teva’s desire to avoid having a shareholder vote on its side, this is probably not acceptable. At $100 a share, Mylan’s enterprise value (or EV) would be $57 billion. Teva is only slightly larger, with an EV of $61.9 billion.
The second concerns merging with Teva itself and accepting its stock as consideration. “The bottom line is that it would not be sensible for the Mylan Board to consider an expression of interest for a business combination that would result in Mylan shareholders being forced to take stock of a poorly performing, troubled company in a combination that lacks industrial logic and is a terrible cultural fit.” If Mylan wants more cash and a $100 handle on Teva’s bid, Teva will probably need to take a vote—something it would like to avoid.
The third concerns regulatory risk. Note that Mylan asks for Teva to bear 100% of the regulatory risk here, something it probably will not accept.
The fourth concerns other stakeholders. Under Dutch law, the board of directors must serve all stakeholders, which means employees, suppliers, and customers.
Ordinarily, a target’s stock would rally on a rejection as investors hope for a higher bid. Mylan is down $4.50 and is now trading at a $10.50 discount to Teva’s bid (a $15 gross spread).
Other merger arbitrage resources
Other important merger spreads include the Hospira–Pfizer deal. The Hospira (HSP) and Pfizer (PFE) merger is also set to close in 2H15. For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.
Investors who are interested in trading in the healthcare sector should look at the S&P SPDR Healthcare ETF (XLV).
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