Deals

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

Normally, a company would look pretty foolish for rejecting a takeover bid when its stock was way up, only to agree later on to a sale after its stock had fallen back down. Not Swedish drugmaker Meda, though.

Meda initially resisted Mylan's approach in early 2014, when the industry was on the cusp of a record merger wave and valuations were surging. Since then, its share price has dropped significantly. So on the face it, Meda's news late Wednesday that it was selling itself to Mylan should be surprising, if not disappointing to shareholders. That is, until you look at the price.

What Selloff?
Meda's share price had plunged 43 percent from a record high in April. But don't worry, Mylan swooped in and brought the price back up -- way up.
Source: Bloomberg

Mylan agreed to buy Meda for 165 kronor a share, or about $9.9 billion including debt. That's not just a premium above Meda's currently slumping stock price -- no, it's a premium over the highest level the shares ever reached. It's also a record markup for a pharmaceutical acquisition, if you exclude transactions smaller than $5 billion. Needless to say, Meda shareholders, which include the billionaire Olsson family, got a great deal. It's like the recent selloff never even happened. 

That's not to say Mylan is necessarily overpaying (although analysts are already saying it is). At about 16 times trailing 12-month Ebitda (as calculated by Bloomberg) or 8.9 times 2015 adjusted Ebitda with synergies (as calculated by the companies), the valuation doesn't stand out as particularly high or low, for this industry at least. They also forecast $350 million of annual cost savings from the merger, which may give earnings a far bigger boost than analysts were projecting Mylan would achieve on its own.

Deal Boom Came and Went
Meda may have missed out on the industry's merger wave, but it didn't miss the boat, so to speak. The company secured a far higher takeover premium than drugmakers its size tend to command.
Source: Bloomberg

Mylan's shares are down a tad in after-hours trading. But this seems to be exactly what pharmaceutical investors have been looking for: A sensible deal that boosts growth and provides synergies. And it's no secret that the company was on the hunt. Not only did it fail to buy Meda back in 2014, Mylan also was unable to win over enough shareholder support for its attempted takeover of Perrigo last year. This merger makes far more sense than buying Perrigo. 

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