Mylan’s Independent Foundation Moves to Ward Off Teva Deal

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Mylan NV’s independent foundation, aiming to fend off a hostile takeover by Teva Pharmaceutical Industries Ltd., exercised an option to acquire shares that let it control half of the company.

The move renders Teva’s attempt to win over a majority of Mylan shareholders much more difficult, unless it can persuade or force the foundation to reverse the action. The Dutch foundation, known as a stichting, said in a statement it made the decision in the best interest of Mylan’s stakeholders. The group doesn’t plan to keep the preferred shares any longer than necessary, it said.

Teva has proposed a $40.1 billion acquisition of Mylan to create a generic-drug powerhouse with more than $27 billion in revenue. Mylan has rejected the offer, saying that Teva is a poor cultural fit and that regulators would object to the deal.

“Mylan and Teva, although both large and successful players in the global market for generic products, have a highly dissimilar business approach, culture, financial model and related management compensation schemes,” the foundation said in the statement.

Mylan has argued it makes more sense to pursue its own takeover of drugmaker Perrigo Co. for about $32.7 billion. The company is planning a shareholder meeting to ask investors to vote in favor of that proposal, which Perrigo has rejected.

Teva said in a statement that it still believes its proposal is compelling.

“We are well advised on Dutch law, including the ability of Mylan stockholders to challenge this action in court, and are prepared to take the necessary actions at the appropriate time,” the Israeli company said.

Exercise Price

The Mylan foundation’s option has an exercise price of 1 euro cent a share, according to an April filing. That means the foundation would have to pay about 4.88 million euros ($5.35 million) for control of half the company, which has a market value of $33.3 billion.

Mylan shares slid 1.6 percent to $66.85 in early trading. Teva’s American depositary receipts dropped 1.3 percent to $61.69.

While Mylan’s operational headquarters remain in Canonsburg, Pennsylvania, it relocated to the Netherlands last year for tax reasons. As part of the move, it set up the stichting, a centuries-old legal structure that can help the company ward off an unwanted offer by issuing new shares. The foundation is governed by a four-member board of directors who are independent of Mylan, led by Pieter Bouw, a former chief executive officer of the Dutch airline KLM.

Court Fight?

As it has pressed for the merger this year, Teva has amassed a 4.6 percent stake in Mylan, enough under Dutch law to initiate proceedings at a court called the Enterprise Chamber in Amsterdam. Now that Mylan’s foundation has exercised a poison pill against the takeover, Teva could turn to the court to challenge the defense.

It wouldn’t be the first time the chamber, a special appeals court for shareholder disputes, is at the center of a takeover battle. It sided with ABN Amro Holding NV shareholders in a case related to the 2007 acquisition of the Dutch bank by Royal Bank of Scotland Group Plc and its partners Banco Santander SA and Fortis, though the Supreme Court eventually overturned the decision.

John Paulson’s hedge fund Paulson & Co., which has been boosting its stake in Mylan, also turned to the same Dutch court to cancel preferred shares issued by Stork NV in 2007. Stork had set up the same defense as Mylan to remain independent, creating a stichting. The ruling paved the way for the Dutch builder of airplane parts to be sold to Candover Investments Plc.