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From Antitrust Law Daily, November 3, 2015

Perrigo resists acquisition despite Mylan, FTC settlement

By Greg Hammond, J.D.

Global generic and specialty pharmaceuticals company Mylan N.V. has agreed to divest seven generic drugs, settling FTC claims that Mylan’s proposed $27 billion acquisition of Perrigo Company plc would be anticompetitive, in violation of Section 7 of the Clayton Act and Section 5 of the FTC Act. While Mylan remains optimistic in moving forward with the proposed deal, Perrigo has and continues to recommend that its shareholders not tender into Mylan’s offer (In the Matter of Mylan N.V., File No. 151 0129, Dkt. C-4557).

Mylan made its first proposal to acquire Perrigo in April 2015 and issued a Rule 2.5 announcement under the Irish Takeover Rules on April 24, 2015, offering a legally-binding commitment to commence an offer for all of Perrigo’s issued and to be issued shares. The offer was later amended on April 29, 2015, and again on August 13, 2015. Under the terms of Mylan’s September 14, 2015, formal offer, Perrigo shareholders would receive $75 in cash and 2.3 Mylan ordinary shares for each Perrigo ordinary share.

The Commission alleges that the proposed transaction would eliminate actual, direct, and substantial competition between Mylan and Perrigo and would reduce the number of competitors in the markets for various generic drugs, including: (1) Bromocriptine Mesylate, a dopamine agonist; (2) Clindamycin Phosphate/Benzoyl Peroxide, a combination antibiotic and drying agent used to stop the bacterial infection that causes acne; (3) Liothyronine Sodium, a synthetic thyroid hormone used to treat hypothyroidism; and (4) Polyethylene Glycol 3350, a laxative used to treat occasional constipation. As such, the FTC asserts that an increased likelihood exists that Mylan would to be able to unilaterally exercise market power in these four markets; for coordinated interaction among the remaining competitors; and that customers would be forced to pay higher prices.

In addition, the FTC claims that the proposed transaction would eliminate future competition between Mylan and Perrigo, reducing the number of generic competitors in the markets for: (1) Acyclovir, used to slow the growth and spread of the herpes virus in the body; (2) Hydromorphone ER, an analgesic used to treat moderate to severe pain in narcotic-tolerant patients; and (3) Scopolamine, used to prevent nausea and vomiting associated with motion sickness and recovery from anesthesia and surgery. This would increase the likelihood that the combined Mylan-Perrigo entity would forego or delay launch of these generic drugs and reduce the substantial additional price competition that would have resulted from an additional supplier of these products, the Commission claims.

Mylan has now reached a consent agreement with the Commission, in which it has agreed to divest the seven generic drugs to Alvogen Group, Inc., according to a final order entered by the FTC. The divestitures would alleviate the Commission’s concerns that the merged entity would eliminate current and future competition.

“We are delighted to have received FTC clearance, making our offer for Perrigo now unconditional other than the one final step, which now rests solely in the hands of Perrigo shareholders,” stated Mylan’s Executive Chairman Robert J. Coury. “We are very confident that Perrigo shareholders will support this transaction by tendering their shares by 8:00 a.m. ET on Nov. 13, 2015.”

Despite Mylan’s enthusiasm, Perrigo has strongly recommended that its shareholders not tender into Mylan’s offer. Perrigo released a statement on October 30, stating: “Mylan again failed to provide a reason for Perrigo shareholders to accept Mylan’s grossly inadequate offer to acquire Perrigo—an offer that has become even more inadequate over time. Mylan is avoiding the real measures that shareholders look to, such as actual takeover premiums and Perrigo’s durable high trading multiple, and instead invents new concepts—such as ‘hypothetical’ share prices and ‘accretion’ to target shareholders. Furthermore, Mylan has shown through its own governance choices, including by rejecting a 48% premium bid from Teva, why there is a governance discount applied to its shares. Trying to now call such concerns a ‘red herring,’ or to shift blame to others only shows the small regard with which Mylan approaches shareholder concerns. We remain confident that our shareholders will not be fooled and will reject this inadequate offer in favor of Perrigo’s superior long-term growth prospects.”

Attorneys: Yonatan Even (Cravath, Swaine & Moore LLP) for Mylan N.V. James Weiss, Jr., FTC.

Companies: Mylan N.V.; Perrigo Company plc; Alvogen Group, Inc.

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