Steven Davidoff Solomon writes for The New York Times, July 23, 2015
The takeover battle between the pharmaceutical rivals Mylan N.V. and Teva went into full-scale fight mode on Thursday when the independent foundation created by Mylan to fend off the hostile bid finally acted.
Known as a stichting — a Dutch defense to protect companies from hostile takeovers — the foundation has the right to purchase 50 percent of Mylan’s shares if the stichting’s three trustees deem that to be in Mylan’s best interest.
Whether existing Mylan shareholders liked it or not, the stichting exercised the option on Thursday, becoming a majority and controlling shareholding of Mylan, which moved its incorporation to the Netherlands a year ago. The purchase makes it much more difficult for Teva, an Israeli company, to win enough shareholder votes to consummate the takeover.
In a manifesto filled with corporate-speak, the stichting said it had acted because “of the uncertainty and threats associated with a possible takeover of Mylan by Teva Pharmaceutical Industries Ltd.” Exercising the rights of the stichting would “restore stability at Mylan to allow it to concentrate on the management of its business” and “create shareholder value by partnering with industry players,” the statement said.
But that was not enough. The stichting, apparently, was looking out not just for Mylan but also for the rest of the world. It based its decision on its opinion that “taking out” one of the top four generic drug manufacturers would reduce competition and have a negative effect on the affordability of generics. The foundation said it was particularly concerned with drug prices and supplies in developing markets.
The stichting was also not above drawing conclusions about the future business plans of Teva. It said that because “Teva has stated that it would not shut down Mylan’s facility in West Virginia, it was unlikely that the Mylan operations in India would remain unaffected.”
The stichting thus asserted it was acting to protect the perceived threat to Mylan’s Indian operations. For those who think that the stichting is in Mylan’s back pocket, this edict provides more evidence. It is clear that although the stichting is supposed to be independent, it would do anything to prevent Teva from acquiring Mylan.
Of course, the question is, Why now? The answer is an easy one. Mylan’s defense against Teva is to buy the smaller drug maker Perrigo and make itself too big — and too expensive — to be acquired. To make the Perrigo acquisition, Mylan needs shareholder approval, and it is preparing to schedule that vote soon. The exercise comes just before that date is set.
Hoping to dissuade any shareholders who might prefer to go along with a Teva takeover, Mylan is making the argument that Teva is really not an option. It is sending the message that even if shareholders do not approve the Perrigo acquisition, there will be no Teva takeover because the stichting will block it.
Beside blocking a Teva takeover, the stichting has also said it will use its shares in the Perrigo vote to offset the 4.6 percent shares of Mylan purchased by Teva earlier this year as part of its takeover maneuver. (Presumably, Teva would use its shares to vote against the Perrigo acquisition.)
And of course, Mylan can say that isn’t its fault — blame the stichting — which in any event is competent enough, and worried enough, to want to protect pricing and competition for the entire world.
Mylan adopted the stichting only a few weeks after it moved its place of incorporation to the Netherlands from Pennsylvania. In its hundreds of pages of disclosure concerning its move to the Netherlands, Mylan’s lawyers disclosed, in several places in the document, the possibility of the stichting and what it could do. But it would take someone steeped in Dutch law to know that the stichting could be used in this manner. The question really is whether shareholders would have approved the Dutch move if they had known it would be used this way.
So what happens next?
First, the move by the stichting probably violates Nasdaq rules since more than 20 percent of Mylan’s voting power has been issued to a third party without a shareholder vote approving it. The Nasdaq rules were adopted just to deal with companies issuing too many shares to friendly parties. Let’s see if the Nasdaq actually acts.
But second, we’ll still see a great battle over the Mylan shareholder vote. For whatever reason, Abbott Laboratories, which owns 14.5 percent of Mylan, has already come out on Mylan’s side. This does not end the matter. If Mylan’s shareholders vote down the Perrigo vote, expect Teva to challenge the stichting in the Dutch courts and to act to remove Mylan’s current directors and replace them with ones who will support the takeover. There is precedent for the stichting’s actions to be limited, but who knows what litigation will produce?
Welcome to the Netherlands, home of Dutch trusts that want to save the world.