In a bid to further strengthen its portfolio, enhance
geographical reach and save taxes,
) inked an all stock deal with Abbott Laboratories (
) to buy the latter's branded specialty and generics business in
developed ex-U.S. markets for $5.3 billion (based on Mylan's
closing price of $50.20 per share last Friday). The all stock deal,
which has been cleared by Mylan's board of directors, is expected
to close in the first quarter of 2015. The news impacted Mylan's
stock price positively.
According to the terms of the deal, Abbott will receive 105 million
shares of the merged entity following the closure of the deal and
own approximately 21% of the new company. Post merger, the new
company will comprise Mylan's existing business and the generic
pharmaceuticals business of Abbott in all developed ex-U.S. markets
such as Europe, Japan, Canada, Australia and New Zealand.
Financials to Get a Boost
The new company, organized in the Netherlands, will be headed by
Mylan's present leadership group. The move to organize the combined
company in the Netherlands is aimed at reducing its tax liability.
Mylan stated in its press release that in the first full year
following closure, its tax rate will be in the range of 20% to 21%
and decline further (high teens), going forward. The formation of
the combined entity is expected to result in more than $200 million
in pre-tax operational efficiencies by the end of the third year.
The company will be headquartered in Pittsburgh, where Mylan is
The deal is expected to boost Mylan's adjusted earnings per share
immediately following closure (by 25 cents in the first year and
increase further). Following the completion of the deal, the
achievement of Mylan's previously stated financial targets for 2018
(EPS of at least $6.00) will likely be expedited. The strengthened
balance sheet, as a result of this deal, should enable Mylan to
pursue similar acquisitions in the future.
Deal to Expand Mylan's Product Portfolio
The transfer of the offerings by Abbott to the new company
following the deal closure should boost Mylan's revenues by
approximately $1.9 billion. Mylan's presence in ex-U.S. markets
would be boosted significantly. For example, European revenues at
Mylan will almost double as the deal will strengthen the company's
position in key markets in Europe such as Italy, the U.K, Germany,
France, Spain and Portugal. The specialty and branded generics
business of Mylan in Central and Eastern Europe will grow
significantly following the transaction.
Moreover, revenues from the Canadian and Japanese markets are
expected to more than double. Mylan's presence in Australia and New
Zealand will also increase in the event of the deal materializing.
Mylan's specialty and branded generic pharmaceutical business will
be strengthened by the addition of more than 100 such offerings
spanning across five major therapeutic areas (cardio/metabolic,
gastrointestinal, anti-infective/respiratory, CNS/pain and women's
and men's health).
A Prevalent Way of Saving Taxes
Mylan becomes the latest U.S. company, looking to save taxes by way
of an acquisition that provides a legal home abroad in a low-tax
regime. The merger of
) and Canadian company
(QLTI) announced last month was also driven primarily by tax saving
attractions. The acquisition of Warner Chilcott by Actavis in 2013,
leading to the formation of Ireland-based
), was also similarly motivated.
Mylan carries a Zacks Rank #4 (Sell). A better ranked stock in the
healthcare space is
) sporting a Zacks Rank #1 (Strong Buy).
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