By Shayndi Raice and Liz Hoffman
At a heated meeting with Mylan NV's executive team in a
Manhattan conference room in May, several investors complained
about the drug maker's resistance to a $40 billion takeover
proposal from Teva Pharmaceutical Industries Ltd.
Executive Chairman Robert Coury leaned across the table and
retorted, in language laced with expletives, "This is a stakeholder
company, not a shareholder company," according to multiple
attendees, meaning his constituents went beyond investors and he
wasn't obligated to agree to a tie-up.
Mr. Coury got his way. On Monday, frustrated in its monthslong
pursuit of Mylan, Teva pivoted, saying it had agreed to buy
Allergan PLC's generic-drugs business for $40.5 billion and was
dropping the Mylan effort.
Mylan's resistance to Teva's proposal was aided by an
acquisition that moved the company's legal home in February from
Pennsylvania to the Netherlands--part of the wave of tax-trimming
"inversion" transactions that swept American business last year.
Mylan, whose senior management remain based in Pennsylvania, gained
not just tax savings, but a Dutch corporate rule book that gives
companies more levers to resist takeovers.
Mylan shareholders were left reeling Monday, as the stock fell
more than 14% to $56.37, well below Teva's $82-a-share offer.
Meanwhile, Teva shares added 16.4% to $72, a hefty jump for an
acquirer, while Allergan shares rose 6.1% to $326.98 on news of the
deal, expected to help it trim debt and focus its strategy.
The outcome for Mylan shows a consequence of the recent
inversion craze, now becoming clearer as companies lay down roots
in new jurisdictions.
As these companies begin to pursue deals, and get pursued, rules
of the game are shifting for shareholders and management.
At some companies, like Mylan, shareholders now have less
leverage with management thanks to their new foreign home, while at
others, like Perrigo Co., which redomiciled to Ireland in 2013,
shareholders are more empowered and companies have fewer tools with
which to resist takeovers.
"Often participants look to inversions and see only the tax
upsides," said Peter Lyons, global co-head of the M&A practice
at law firm Freshfields Bruckhaus Deringer LLP. "Many times there's
more to the analysis, whether it be different rules on corporate
governance or differences in the approach to [future] transactions.
They would be well-served to consider all of these factors."
A Mylan spokesman said, "Mylan certainly has always considered
the interests of shareholders. But a core principle at Mylan is
that shareholders benefit from a well-run business, and to run a
business well, you need to focus on all of the stakeholders we
touch on a daily basis, including customers, patients, employees,
suppliers, creditors and communities."
Mylan has also maintained its stand-alone strategy is preferable
to a takeover by Teva. Mylan primarily makes generic drugs but also
sells the popular branded product EpiPen, a treatment for allergic
reactions.
The Netherlands is a stark example of how the takeover rules can
change. As U.S. companies moved to invert in recent years--buying a
foreign entity and then switching domiciles-- most headed for
Ireland or the U.K., where lower tax rates combined with language
and cultural fits.
But Dutch policy makers have spent the past decade touting the
benefits of Dutch law to global corporations as part of an effort
to turn the Netherlands into a management-friendly bastion.
Advocates of the Dutch system say it lets boards invest in the
business and plan for the long term, while critics say the balance
tilts too far in favor of management over shareholders.
Rients Abma, executive director of Eumedion, an organization
representing Dutch institutional investors, said he worries such
moves "will give the impression among foreign shareholders that
[the Netherlands] is not a shareholder-friendly environment and
that can have negative consequences for all companies incorporated
in the Netherlands."
Mylan set up a Dutch foundation, known as a stichting, which is
an antitakeover defense comparable to a U.S.-style poison pill. The
foundation had the right to receive preferred shares that allow it
to block any deal, outvoting other shareholders. The board of
Mylan's stichting triggered its special voting rights last week,
saying it would oppose a takeover by Teva.
Mylan also instituted a rule that says only the current
chairman--today, Mr. Coury--can appoint new directors, even in the
event all board members are ousted by shareholders. That means
shareholders effectively cannot replace the board, a powerful tool
in U.S. takeover fights. Corporate-law experts said this provision
would be highly unlikely to survive a legal challenge in the
U.S.
That nomination right was spelled out in Mylan's disclosures to
shareholders about the deal, which was approved by 97% of votes
cast. Yet some investors are disenchanted with the reality: A
lawsuit filed on behalf of Mylan shareholders in June in
Pennsylvania alleges the company didn't give shareholders an
adequate say over the creation of the stichting. A Mylan spokesman
said the company believes suit is without merit.
Other companies are using similar strategies. Cable firm Altice
SA is proposing its shareholders vote in August to switch its
corporate domicile from Luxembourg to the Netherlands, a move that
will allow it to institute a dual-class share structure. Such a
structure, which is generally barred in Luxembourg, would give the
company's chairman, Patrick Drahi, approximately 92% of the
company's voting power while owning 58.5% of the company.
Similarly, Italy's Agnelli family was able to tighten its grip
on Fiat Chrysler Automobiles NV when it switched its domicile to
the Netherlands last year. The move allowed the family to increase
its voting power to around 46% on a financial stake of about
30%.
As for Perrigo, currently facing a hostile takeover attempt from
Mylan, the maker of private-label drugs redomiciled to Ireland
through a 2013 merger and, in doing so, surrendered a bevy of
takeover defenses that could now come in handy. Ireland has no
poison pills and doesn't allow boards to take any actions, like
large acquisitions or restructurings, to thwart a takeover bid.
That is good news for Perrigo's shareholders eager for a quick
premium, but leaves its board with fewer options.
Perrigo shares rose 3.8% to $193.60 on Monday.
Write to Shayndi Raice at shayndi.raice@wsj.com and Liz Hoffman
at liz.hoffman@wsj.com
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