The clock is winding down on Mylan's hostile bid for Perrigo, which expires Friday. And while some analysts still think the odds of a deal are no better than a coin toss, there's a new factor at play that bodes well for the unrelenting suitor.
More than a third of Perrigo's shareholders also have stakes in Valeant Pharmaceuticals, the embattled drugmaker that's tumbled more than 60 percent in less than two months. (That's according to the most recent publicly available shareholder data compiled by Bloomberg.)
These investment firms have racked up losses of 20 percent on average on their Valeant positions, based on their mean cost basis. Some have held the stock for five or more years, so they're still in the green. But a good chunk of them bought Valeant within the past two years and have lost roughly half their money.
Mylan is offering these investors a chance to salvage some of their portfolio returns in time for the close of 2015. The company has a cash-and-stock offer on the table worth $180 a share, about 10 percent higher than Perrigo's current price.
There is much more to be considered than price, though. Strategic fit has been questionable given that the companies don't have much overlap. Perrigo focuses on over-the-counter treatments, while Mylan makes prescription medications such as EpiPen, an injection to treat severe allergic reactions.
Mylan needs more than 50 percent of Perrigo shares outstanding to be tendered by Friday's 8 a.m. New York time deadline. The company says it's confident it can do that. Perrigo Chief Executive Joe Papa said on CNBC Monday that he's confident 80 percent of its long-term holders won't sell their stakes to Mylan because it's "a bad deal."
It's hard to guess which way the hedge funds will go. But the "swing factor," says Randall Stanicky, an analyst for Royal Bank of Canada, may be the index funds, which track certain market indexes. (Aren't they always? But whether these passive funds have too much power in voting situations is a story for another day.)
Whether Mylan will eat Perrigo for breakfast Friday is still up in the air. But the turmoil around Valeant may play a big role in some investors' ultimate decisions.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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