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Sunday, 13 September 2015 20:19

Perrigo’s tax inversion made it an easier target for takeover; A Q&A with GVSU’s Sridhar Sundaram

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Sridhar Sundaram Sridhar Sundaram COURTESY PHOTO

Perrigo Co. plc’s move in late 2013 to execute a corporate tax inversion and redomicile in Dublin, Ireland after a major European acquisition plays into the hostile takeover effort the corporation now faces from Mylan N.V.

The corporate tax inversion essentially made Perrigo an easier target because of Irish takeover laws that offer corporations domiciled there fewer protections, said Sridhar Sundaram, an associate dean of Grand Valley State University’s Seidman College of Business.

Sundaram is studying tax inversions by U.S. corporations and their economic implications. He spoke with MiBiz about Perrigo’s inversion and the $32.7 billion takeover bid that Mylan, with the recent backing of its own shareholders, intends to take directly to Perrigo shareholders on Sept. 14. They have until Nov. 13 to consider the offer. Perrigo has repeatedly rejected Mylan’s offer, saying it significantly undervalues the company.


As someone who watches the West Michigan business scene, what do you make of the situation in which Perrigo finds itself?

When Perrigo decided to move to Ireland, I think that opened up the doors for it to be a target for future acquisition. They are really well-placed from prior acquisitions. It has really good access to multiple markets around the globe. It’s really a good company with good product and a really good potential target.

In doing the tax inversion, is Perrigo now experiencing the result of unintended consequences?

Most of the companies that are going for tax inversions are finding out that the pro was the lower tax rate. The con is the disadvantages that they have and the protection they don’t have under U.S. laws.

The other thing that makes it easier for this is there is so much cash that companies have parked (overseas) because of tax regulations (in the U.S.) that they have the ability and the resources to go after targets, and that’s what’s happening in the case of Perrigo and others. You have international, global companies that have significant cashflow out there and they have an ability to buy and acquire other companies.

(Editor’s note: Mylan last year executed its own corporate tax inversion and redomiciled in the Netherlands following a European acquisition of the overseas business of Abbott Laboratories.)

What advice would you offer Perrigo on how to fend off Mylan’s takeover attempt?

The case that has got to be made is the impact it has on other stakeholders, whether you’re looking at employees, whether you are looking at the impact on Allegan, or looking at other opportunities that Perrigo may have in addition to the acquisition from Mylan. Those are the keys (Chairman and CEO) Joe Papa will have to make to the investment community.

How do you see this scenario playing out?

My feeling is that by 2016, it will be difficult for Perrigo, unless it comes up with an alternative acquisition plan or a partner, to put off Mylan. By the fall, they (Perrigo executives) have to come up with some alternative plan where they can show the investment community that, yes, they have a better plan. If they don’t, I think Mylan is going to be successful. It may happen in the fall or it may happen in the spring.

(Editor’s note: CEO Papa has repeatedly said that Perrigo, with its acquisition into adjacent product categories and product development strategies, has greater growth potential as a standalone company than it does under Mylan.)

How does Perrigo’s history of acquisitions play in the situation?

They have been doing some significant acquisitions for a period of time. If they are to continue the plan, what is the three-to-five-year vision for Perrigo? What kind of acquisitions are they looking for? Are they looking for a friendly partner and a white knight that they would be able to work with? The institutional investors have to look at it and say, ‘Yep, I can see a better path,’ or ‘I can have a better return from the company in the long term if it’s standalone.’ It’s going to be a difficult case to make at this point in time.

What does this say about what Perrigo has become as a corporation and global player within its industry in the last decade?

You just look at its acquisitions. They just have a strong presence now all around the world. When you look at that, it’s ‘we are a global player and therefore that makes us a target from the multinationals.’ And I think that’s what Mylan is looking at. It has an opportunity with Perrigo to get into markets that it doesn’t have presence in.

Even if Perrigo is able to fend this off, does it remain a potential acquisition target by somebody else out there?

In the long run, absolutely. In the short term, they may be able to fend off (acquisition). Sooner or later, they’ll be looking for a partnership and expansion. If they continue to grow and expand, that’s probably how they will be able to remain as Perrigo and not be acquired. But they’re a very good company. They are performing well and the markets they are playing in are a very good market space for many companies, so they are already going to be a target. The question is, as they continue to get bigger in size, how many people can afford to buy them? So right now they are a target for many big companies — and moving to Ireland makes them even more attractive.

Read 4172 times Last modified on Monday, 28 September 2015 10:50

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