Generic drug maker Mylan announced plans on Tuesday to take its hostile takeover offer for Perrigo directly to that Ireland-based company’s shareholders, starting Sept. 14. The move has been expected since Mylan’s shareholders approved its $35 billion unsolicited proposal for Perrigo on Aug. 28, clearing the way for the company to launch a tender offer to Perrigo’s investors.
Since Mylan (MYL) announced its desire to acquire Perrigo (PRGO) in April, it has been bound by Irish takeover rules that allow it to bypass Perrigo’s management and board, which have so far rejected Mylan’s offers. Instead, Mylan plans to appeal straight to Perrigo’s shareholders, who will then have until Nov. 13 (60 days from when the tender offer begins on Monday) to decide whether to redeem their shares in exchange for $75 plus 2.3 shares of Mylan.
Perrigo’s CEO Joseph Papa has shown no signs of giving in to Mylan, having stated recently that the company is “confident its shareholders will reject Mylan’s value destructive transaction.” Perrigo, the leading manufacturer of generic drugstore-brand versions of over-the-counter products such as Tylenol and Mucinex, operates from its main offices in Michigan, though it moved its corporate headquarters to Ireland in a tax inversion in 2013.
If Mylan succeeds in taking over Perrigo, the deal would be the largest takeover completed under hostile conditions in world history, according to Dealogic. Since 2000, other successful takeovers that remained hostile til the end (that is, where the target company’s management didn’t eventually side with the buyer) have been valued at less than $10 billion each; in the U.S., the four hostile takeovers completed since then have each been worth less than $300 million.
To take effective control of Perrigo, Mylan needs only a majority of the over-the-counter drugmaker’s shares. Under Irish law, receiving at least 80% of Perrigo’s shares would effectively make Mylan the rightful owner of the company. But Mylan said in August that if it were to gain control of at least 50% plus one vote, it would “operate Perrigo as a controlled subsidiary,” “control the composition” of Perrigo’s board and management team, and “effectively control Perrigo’s day-to-day operations.”
If Mylan receives a percentage of Perrigo in between the 50% and 80% thresholds—a scenario Mylan says is “highly unlikely”—some governance experts believe it will be more challenging to complete the acquisition. In that event, Perrigo would essentially become a “vassal state, withering arm run by Mylan,” while Mylan launches subsequent tender offers to Perrigo’s holdouts, says David Whissel, director of research for shareholder advisory Proxy Mosaic.
In announcing the tender offer Tuesday, Mylan’s executive chairman Robert Coury responded to these concerns in an open letter to Perrigo’s CEO, writing that the path to completing the deal under those circumstances is “also very straightforward,” and that Mylan has previous “experience operating companies in such a scenario.” Coury also reminded Papa that the deal’s “final outcome rests solely” with Perrigo’s shareholders: “You and your Board are now unable to stop the combination,” Coury wrote.