Drugmaker Meda’s Shares Fall Back After It Snubs New Mylan Bid

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Mylan failed in US$9 billion takeover of Meda

STOCKHOLM, (Reuters) – Swedish drugmaker Meda rejected an improved takeover offer from U.S. generics firm Mylan which one person familiar with the matter said valued Meda at around $9 billion including debt, driving its shares sharply back down.
The new offer comes amid a flurry of deals in the industry as it restructures in the face of health spending cuts and cheap generic competition. U.S. firm Pfizer confirmed its interest in Britain’s AstraZeneca on Monday in what would be one of the biggest pharma deals ever.
American drugmakers are also eyeing potential takeover targets abroad as they look to relocate their headquarters to other countries with lower tax rates.
Mylan’s sweetened all-stock offer was worth 145 crowns per share, a person familiar with the matter said – which would represent a premium of about 50 percent over Meda’s share price before news of the U.S. firm’s original approach emerged earlier this month.
However the Meda board said the firm’s biggest shareholder did not back a deal. Its biggest investor by far is Stena Sessan Rederi AB – controlled by the Olsson business family – which owns a 22.7 stake and can block any takeover attempt.
The board also said it was confident in Meda’s future as an independent firm.
Meda, which makes speciality products, over-the-counter drugs and branded generics, has long been viewed as a takeover target in the sector. It has returned to growth due to new allergy medicine Dymista and a strong contribution from emerging markets where it has invested to drive sales in recent years.
Its sales grew by 4 percent last year on a like-for-like basis and adjusted for currency swings, up from zero growth the previous year. The company has forecast similar growth this year with improved profit margins.
Meda shares were down 7.9 percent at 1324 GMT, giving up most of the gains they made on Friday when they rose 10 percent on news of the improved offer.
The new offer followed a rejection by Meda’s board earlier this month of a 130 crowns per share offer from Mylan, according to the source familiar with the matter.
The latest approach would value Meda’s outstanding shares at $6.7 billion. The drugmaker also had net debt of $2.3 billion at the end of last year.
This would mean a multiple of about 14 times analysts’ forecast for Meda’s 2014 earnings before interest, tax, depreciation and amortisation (EBITDA) on an enterprise value basis. Mylan trades at about 10 times forecast earnings, according to Thomson Reuters data.
The share price premium is also higher than the 30 percent Pfizer said it had proposed for AstraZeneca in January, and higher the roughly 25 percent premium generic drug maker Actavis offered for Forest Labs in February.
“We believe Mylan may come back a third time,” Pareto Securities said in a research note, adding that a bid between 135 and 145 crowns would have implied “very decent pricing”.
Pareto said the board’s faith in Meda’s growth prospects meant a buyer may have to look at 2015 projections to buy the firm now. “We believe this would imply a share price of SEK 160,” Pareto said.
“We do also believe that the board has concluded that Mylan is the distressed entity and not Meda, as Meda is a potential target for many companies.”
Meda reported sales of 13.1 billion crowns ($2.0 billion) last year and EBITDA of 3.7 billion crowns. Analysts on average expect earnings to grow by 10 percent in 2014, and by 14 percent in 2015, according to Thomson Reuters data.
Apart from tax savings, Meda would boost Mylan’s presence outside the United States and give it access to Meda’s distribution channels in Europe and some emerging markets, where Meda has grown quickly in recent years.
Rejecting Mylan’s latest approach, the Meda board said in its statement: “The board’s decision is based on a strong belief in the continued potential of Meda as a stand-alone company and the assumption that a transaction cannot be completed as it lacks sufficient support from Meda’s largest shareholder.”
Meda’s chairman Bert-Ake Eriksson, who is also the chief executive of Stena Sessan Rederi, declined to comment further as the letter Meda’s board had received from Mylan was confidential. Mylan was not immediately available for comment.
The second and third-biggest shareholders in Meda are Swedish pension funds groups Swedbank Robur and AMF Pension with 4.86 percent and 2.7 percent stakes respectively as of the end of December, according to Thomson Reuters data.
Swedbank Robur did not immediately reply to a request for comment, while AMF Pension declined to comment. (Additional reporting by Helena Soderpalm; Editing by Mark Potter and Pravin Char).

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