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Sunday, 08 November 2015 21:31

Perrigo executives outline cost-cutting plans, cast doubt on Mylan’s claims as takeover deadline looms

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Hendrickson Hendrickson


ALLEGAN — Perrigo Co. plc President John Hendrickson offers a clear message to his counterparts at Mylan N.V. regarding their proposed $27.1 billion hostile takeover of the over-the-counter medication manufacturer.

“Get away from our business. You don’t know how to run the business that we are in,” he said.

Hendrickson’s sentiments cap off what’s become an acrimonious process that’s played out between the two corporations over the last several months.

On the one hand, executives at Perrigo call the proposed hostile takeover a bad deal that destroys value, but leaders at Mylan pitch it as the exact opposite. Instead, they see it as an opportunity to create a global drug company with greater capabilities across product lines and geographic markets.

As the deadline approaches this week for Perrigo shareholders to tender their shares to Mylan, it’s clear that executives at both corporations agree on very little, yet they voice equal confidence that their arguments will ultimately prevail.

“We will win this fight,” said Hendrickson, the recently appointed president of Perrigo, in an exclusive interview with MiBiz.

Perrigo shareholders have until Nov. 13 to decide whether to sell their shares for $75 in cash and 2.3 shares of Mylan stock for each share they hold. Directors and executives have repeatedly rejected Mylan’s past and present takeover proposals as significantly undervaluing the company and urged shareholders to take no action on the $27.1 billion unsolicited offer.

The reason: They say Perrigo can do better on its own.

“When we look at our situation, we feel the economics of the deal and what the shareholders would get in the deal, all of those things … (make for) a very bad deal. Frankly, if it were a good deal, we’d probably be embracing it,” Hendrickson said.

Currently, Hendrickson is overseeing a major cost-cutting initiative at Perrigo that coincides with the company’s effort to fend off the hostile takeover bid. The plans involve selling off the business unit for vitamins, minerals and supplements; streamlining operations and cutting 6 percent of its workforce globally, or 800 jobs; and buying back $2 billion in shares. About 450 job cuts will occur in South Carolina where the vitamins, minerals and supplements business is based. The remaining positions will come through attrition and about 250 reductions globally, Hendrickson said.

About $500 million of the share repurchase will come in the fourth quarter, boosting 2016 earnings by 15 cents per share. The remaining $1.5 billion in share repurchases will occur over the following 24 to 36 months. Altogether, the actions should generate $175 million in benefits to Perrigo, lifting earnings by 38 cents per share to $9.83 in 2016.

Perrigo also will consolidate supply chain and procurement management into a single global center based in Ireland, where the company is domiciled, “to maximize value through the elimination of redundancies and enhancement of purchasing power.”

While the moves come amid the takeover battle, they have been in the works for some time, Hendrickson said. The initiative “probably would have happened at a similar pace” with or without the hostile takeover bid, he added.

Perrigo opted to announce the initiative publicly so shareholders had the information as they decided whether to tender their shares to Mylan.

“We wanted everybody to know what our go-forward looks like and what we’re doing,” Hendrickson said. “It’s not new. We’re just getting the information out there so that people can understand the strategies we have and where we’re headed more fully to bake that into their valuation as they’re reviewing the Mylan offer.”


If a majority of Perrigo shareholders opt not to sell their shares to Mylan, the company will continue with its present strategy of global expansion through acquisition and new product development. If they do, Perrigo either gets completely taken over or becomes a subsidiary of Mylan, depending on the number of shares tendered.

Mylan executives have said that if it can acquire more than 50 percent of Perrigo but is unable to gain 80 percent of shares that would allow it to force out the remaining shareholders, it would run the company as a controlled subsidiary.

Perrigo executives claim that scenario would make it virtually impossible to generate the promised $800 million in efficiencies Mylan claimed. A shareholder vote that results in Mylan holding 50 percent to 80 percent of Perrigo is “just ugly for both companies,” Hendrickson said.

“They can’t get the synergies that make the deal work. They have debt issues and they have all kinds of issues by not being able to get there,” he said, noting that Perrigo Chairman and CEO Joe Papa has called that scenario “purgatory.”

Mylan, of course, disputes that notion and insists it can achieve the $800 million goal with Perrigo as a controlled subsidiary or a full acquisition.

Within 60 days of any transaction, Mylan “will have developed a clear roadmap for integration of our businesses, a plan for synergy realization as well as a defined operating model” for Perrigo, said Mylan President and Executive Director Rajiv Malik in a recent conference call with analysts.


Another criticism of the hostile takeover bid from Perrigo is that Mylan makes generic and specialty drugs and lacks experience in the over-the-counter medications market. About 83 percent of Mylan’s $2.71 billion in quarterly revenue came through the sale of generics, with most of the rest resulting from specialty drugs sales.

“Mylan has virtually no presence in the consumer-facing space, which makes vertical integration and streamlining a completely unrealistic way of attending synergies,” Perrigo CFO Judy Brown told analysts in a late October call to discuss quarterly results.

“They don’t understand this business,” Brown said. “As a shareholder, you need to ask yourself: Do you really think Mylan — without any experience in the space — can run Perrigo’s world-class OTC supply chain and operations better and more profitably than we can?”

In Mylan’s recent earnings conference call, Malik countered that claim by saying his company has identified interim leaders for key Perrigo functions and named a leader for the OTC business, all of whom “are prepared and fully capable of managing these functions in the event the Perrigo leaders in those areas choose to depart upon closing.”

Mylan also has retained third-party consultants “with significant experience in the OTC space” and plans to implement a program to retain Perrigo managers, if shareholders tender enough shares to transfer ownership of all or a majority of the company.

“We believe that, as we communicate with leaders and their employees, they will see the significant opportunities for their future growth that this combination presents and they will be excited to engage with us on achieving a shared vision for the combined business,” Malik said.


Perrigo directors and Papa have repeatedly refused to meet with their counterparts at Mylan to discuss a deal.

As the deadline for shareholders to decide on whether to tender their shares approaches, Mylan Executive Chairman Robert Coury reached out to Papa, who has repeatedly attacked Mylan’s corporate governance as unfriendly to shareholders.

In an Oct. 25 letter — and anticipating a positive shareholder vote — Coury proposed a meeting “as soon as possible” to discuss how best to combine the two corporations and “forge something truly great together.”

“I assure you we are open-minded on how best to achieve success for our combined operations and we truly welcome your input. For example, as I have made clear to both Mylan and Perrigo shareholders, I would be very interested to listen to and discuss the thoughts on corporate governance of you and your Board for the combined Mylan-Perrigo company,” Coury wrote

Despite those claims, Hendrickson and the other Perrigo executives remain unimpressed with Mylan’s offer.

“They’re getting into a business they profess to be experts in, but they’re not,” Hendrickson said.

Last week, Mylan said it would hold a shareholder vote at its next general meeting to make changes to its corporate governance and how directors are nominated and elected.

Meanwhile, Mylan also agreed to sell the rights and assets to seven generic products to settle a U.S. Federal Trade Commission complaint that alleged a transaction with Perrigo would “substantially lessen competition” for four products and reduce future competition for three others. Under the proposed settlement with the FTC, which is subject to a 30-day public comment period that runs through Dec. 3, Mylan would sell the seven generic products to Pine Brook, New Jersey-based Alvogen Inc.

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