Thursday, September 17, 2015

Mylan, Perrigo and the Power of the Board

We've written before about Mylan and takeovers (e.g., Shareholder Centric or Stakeholder Centric and Offense and Defense in the Drug Industry).  This weeks Wall Street Journal contains an excellent article by Ron Barusch updating the Mylan story.  It presents a very interesting contrast between the takeover laws of Ireland, the Netherlands (where we teach the Acquisition Finance Course) and the US.  The facts below are taken from the article.

Mylan is attempting to take over Perrigo in a hostile deal.  Under Irish law, the directors of Perrigo can express their feelings about the deal, but must let shareholders decide on its merits.  If the deal fails, Mylan would have to wait a year before attempting another deal.  But the key is that shareholders - the owners of the firm, decide.

Contrast that with the situation of Mylan itself.  Mylan was a takeover target earlier this year when Teva Pharmaceuticals made a bid for the firm.  Mylan blocked the attempt by forming a "stichting", an independent foundation that is required to consider the interests of all stakeholders before approving a deal.  Giving the stichting voting control effectively blocks hostile takeovers.  Shareholders, the true owners of the company, lose the right to tender their shares for a premium.

Here is where it gets really interesting.  Shareholders can remove directors - but only with two-thirds of the voting shares and even then replacements are named by the board!  If the entire board is removed, "...the former chairman - that's right, the one who was just unseated- gets the powers of the board."

The article also discusses the shift in the US towards a more shareholder friendly governance structure with the elimination of poison pills and staggered boards and concludes by noting that Mylan escaped such moves when it became incorporated in the Netherlands earlier in a tax inversion.

Interesting reading and a warning to shareholders - the residual claimants and owners of the firm.

All the best,


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