Jul 24, 2015 4 min read

Mylan N.V. Thursday launched a poison pill defense against Teva Pharmaceutical’s hostile takeover attempt in the form of a “stichting” incorporated under the law of the Netherlands, where the Southpointe-based generic drugmaker incorporated earlier this year.

According to a press release, “Stichting Preferred Shares Mylan,” an independent foundation, notified Mylan that it exercised its call option to acquire 488,388,431 preferred shares under a call option agreement that was established in early April between Mylan and the foundation.

The call option represents 50 percent of total issued and outstanding capital of Mylan.

While Mylan is incorporated in the Netherlands, it maintains its administrative headquarters in Southpointe and its pill-manufacturing plant in Morgantown, W.Va.

In a separate statement Thursday, the stichting said its action was taken as a defense from a hostile takeover bid by Teva.

“The Stichting Preferred Shares Mylan has formed its independent judgment that Mylan N.V.’s best interests and those of its broader stakeholder constituencies are at risk as a consequence of the uncertainty and threats associated with a possible takeover of Mylan by Tea Pharmaceutical Industries Ltd. The Stichting has come to this conclusion on the basis of the hostile character of Teva’s approach, as well as an extensive review of public filings, press statements and investor presentations by both Teva and Mylan, and input received from numerous industry experts, suppliers, customers, consumer groups, patient associations, NGOs and similar Mylan stakeholder groups.”

In a separate statement, the stichting noted the issuance of the preferred shares to it are temporary, stating it does not intend to keep its preferred shares “for any longer than necessary to achieve the objectives in line with its purpose.

“In relation to the expected Mylan shareholder meeting on the Perrigo transaction, the stichting has noted Teva has built up a 4.6 percent stake in Mylan and has stated that it intends to vote against the Perrigo transaction.

“The stichting intends to use the voting rights on its shares to create a level playing field. Otherwise, the stichting does not intend to use its voting powers to influence the outcome of the Mylan shareholder vote on the Perrigo transaction.

While noting that Mylan and Teva “are both large and successful players in the global market for generic products,” each has “a highly dissimilar business approach, culture, financial model and related management compensation schemes. For instance, in respect of each company’s capital structure, Mylan follows a strategy of using financial leverage and retained profits to fuel further growth, whereas Teva has implemented a strategy of regular dividend payouts, a focus on cost control and product portfolio rationalization.”

The stichting further notes Mylan has built a strong base in India, including a significant production capacity, R&D and workforce, and has several partnerships with Indian and other international companies “which are crucial to its ability to make a broad range of generic products available to patients in the United States, Europe and developing countries.

“By contrast, Teva has shown limited commitment to India or to developing markets, and instead has focused on Israel and Eastern Europe for its manufacturing activities and on higher margin, complex and branded generic products in developed markets.

“The stichting appreciates the relevance of increasing scale in a consolidating pharmaceutical market. However, the differences in employee footprint and therefore background and culture represent a barrier to a successful post-acquisition integration.”

According to the stichting, the $2 billion of synergies forecasted by Teva would require major cuts in general and administrative expenses and sales but also in R&D and manufacturing.

Teva stated it would not shut down Mylan’s facility in West Virginia, but the stichting stated it believes this makes it unlikely the Mylan operations in India would remain unaffected.

Teva responded with a statement following Mylan’s announcement: “We strongly disagree with the stated analysis of Stichting Preferred Shares Mylan and its decision to exercise its call option, which is unwarranted, relies on false assumptions, and risks depriving Mylan stockholders and other stakeholders of the value inherent in a combination of Teva and Mylan. We continue to believe that our proposed transaction offers a compelling opportunity for value-creation and many other benefits for the stockholders, customers, patients and employees of both companies. We are well advised on Dutch law, including the ability of Mylan stockholders to challenge this action in court, and are prepared to take the necessary actions at the appropriate time.”