Mylan’s chief executive Robert Coury has clarified and assured shareholders that the company has not overpaid for the acquisition of Merck. He further added, ‘in this case, by paying for a fairly high quality one-time pristine asset, I am able to achieve all the scale necessary in all the areas that are important to compete in the generics pharmaceutical space’. While paying 4.9 billion euros, Mylan is paying just about 2.7 times last year’s purchase of Merck’s generics unit, approximately the same manifold that Germany’s Stada paid for Hemofarm last year and higher than Barr’s recent acquisition of Pliva at 2.5 times.
Mylan Laboratories has recently agreed to acquire the generics business of Merck, of Germany, for $6.6 billion in cash, shooting the US firm into the global top three makers of copycat medicines. The generic pharmaceutical firm defeated intense competition from a host of rivals in a fiercely contested auction to secure the take over of Merck Generics in the early hours of yesterday. The deal puts Mylan at number three position in the global league table, behind Teva Pharmaceuticals, of Israel, and Novartis, of Switzerland, with combined revenue of $4.2 billion in 2006 and about 10,000 employees. To pay down debt taken on to fund the deal, Mylan, based in Canonsburg, has said that it will issue $1.5 billion to $2 billion in equity or equity-linked securities and suspend its dividend.
The scuffle for the Merck division was certainly a struggle for Mylan’s future. If Mylan becomes disheveled by the acquisition, it will become extraneous in the long term. But if the arrangement moves efficiently, Teva will face intense competition in crucial markets. The take over has provided Mylan its first significant international footprint with leading positions in the French, Australian, Scandinavian, Portuguese and Spanish markets. Merck also brings with it a strong position in the British and Japanese markets.
On the other hand, after losing out, Teva had published a press release implying Mylan had in fact overpaid for the business.In its statement it said, ‘Teva’s long-held practice is to only pursue transactions that fit our long-term strategy of delivering profitable growth and enhancing our global leadership position while meeting our stringent financial criteria. While Merck’s generics business would have been a strategic fit for Teva, the terms of this opportunity did not fully meet our investment criteria’. It clearly implies that Teva believes the high purchase price will complicate Mylan’s finances and make it into a takeover target.
Mylan has said in its official communique that the deal would give it $250 million in annual cost savings by the end of the third year, but it is extremely cautious about fierce competition from Teva and from Actavis, of Iceland, along with several private equity houses. Analysts had expected the unit to fetch €4 billion to €5 billion. In addition to it, Mylan further said that it would retain Hank Klakurka, the president and chief executive of Merck Generics, and had agreed ‘long-term employment agreements’ with other senior members of the management team.
The acquisition is the biggest among generics companies since Teva’s $7.6 billion takeover of US based Ivax Corp. in January 2006. Interest in generic-drug companies is increasing as patents expire and governments seek ways to curtail the rising cost of public health care. The acquisition will enable Darmstadt-based Merck to concentrate on its principal pharmaceutical and chemical activities, whereas allowing Mylan to expand its product range and global reach.
