Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Somewhere in Ireland -- cough, I mean Michigan -- Perrigo's executives are celebrating.

Mylan, the drugmaker's hostile suitor, failed to persuade enough of Perrigo's investors to tender their shares, so the $21 billion target will remain independent. This puts an end to a contentious seven-month battle between the two companies, but not to dealmaking as a whole. And even though Perrigo's stock is down as a result, the news is just as much a positive for Perrigo shareholders as it is for management because the deal didn't make much sense anyways.

Acquisitions are core to Perrigo, so don't expect it to stay idle. And if anything, the opportunities arguably increased during the time the maker of over-the-counter treatments was trying to avert a sale to Mylan, which makes prescription medicines such as EpiPen for severe allergic reactions. Industry acquirers earlier in the year were paying incredibly steep valuations, but pharmaceutical and biotechnology stocks have since taken a bath.

Record Drug M&A Volume
Many pharmaceutical companies are pursuing takeovers in a shift away from the costly process of discovering new drugs.
Source: Bloomberg

The industry's market rout "may actually create some more opportunity to enter into dialogues with companies that perhaps had different views of value in the past and may be saying this is the right time to consider a conversation," Judy Brown, Perrigo's chief financial officer, said in an interview this week. 

At a time when many dealmakers across industries are making seemingly impulsive purchases, Perrigo is to be commended for not doing the same. The company could have attempted an alternative merger to make Mylan go away. But doing a large, defensive deal under pressure isn't ideal and leaves the acquirer in a weaker negotiating position. Of course, it's also possible that it just couldn't find a willing seller.

Perrigo and Endo International, a rival valued at $13 billion, held talks this summer, according to a Wall Street Journal report, which neither company confirmed. But such a merger is plausible. Endo, which makes treatments in the pain and urology spaces, is also domiciled in Ireland and has built its business model around acquisitions that take advantage of the nation's low tax rate. (Both companies' main operations are in the U.S., with Perrigo's in Allegan, Michigan and Endo's in Malvern, Pennsylvania).

Endo may struggle to find quality targets going forward as it competes with acquirers that have more firepower, according to Cowen Group analyst Ken Cacciatore. And here's what the stock's done this year:

Endo's Plunge
The stock has declined 20 percent this year, compared with an average loss of less than 1 percent for the Bloomberg Intelligence index of specialty pharmaceutical companies.
Soure: Bloomberg

Endo could be a logical target for $24 billion Mylan, too. Could we see Mylan and Perrigo going at it again, but this time over the same target? 

French pharma giant Sanofi has put its animal health and European generics businesses under review, so that's another possibility for either acquirer. Sanofi's animal-health unit generated about $2.8 billion of revenue in the 12 months through September, and generics brought in $2.2 billion, according to data compiled by Bloomberg.

Pfizer and Allergan are also looking to merge, now that Allergan has unloaded its generic-drugs unit to Teva Pharmaceutical Industries. And with Pfizer angling for a breakup at some point, its own generics unit could be the next to go.

Among smaller candidates that were beaten up the past couple of months are Horizon and Depomed, valued at $3 billion and $1.2 billion, respectively. Horizon has a hostile bid out for Depomed, which makes painkillers and anti-seizure medicines. But that bid also looks doomed to fail. 

Then there's Valeant. If any buyers dare touch it, there is the possibility that the $25 billion heavily-indebted company looks to sell assets at some point. 

In any case, this won't be the last you hear from Perrigo or Mylan. Hopefully for shareholders' sake, their next pursuits are more efficient and less heated.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net