How Abbott Sees Potential Gains In Boosting Mylan In Perrigo Takeover Fight ?

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Abbott Laboratories

Abbott Laboratories (NYSE:ABT) has been on the roll in recent months. March-period earnings were strong, where the worldwide operational sales increased 10% year over year to $4.9 billion with robust growth experience in emerging markets, as we noted at the time. Contributing to the strong performance was the sale of Abbott’s branded generic drug business in developed markets to Mylan (NASDAQ:MYL) and its animal health business to Zoetis in February 2015. The company recorded a $1.7 billion gain on the sale of these two business. On the top of this, Abbott, having a 14.5% stake in Mylan NV, is now backing the company’s plan of hostile takeover of Perrigo Co Plc. Indeed, Abbott Chief Executive Miles White, has recently reiterated that the board supports Mylan remaining an independent company and thinks that buying Perrigo will benefit shareholders.

We have re-considered this acquisition issue at length and concluded that Abbott should stand by its decision, leveraging the powerful potential of Mylan’s platform, and the critical importance of its scale and breadth across Abbott’s distribution channels. Let us take a closer look below.

We have a price estimate of $45 for Abbott Labs, which is at an approximate discount of 10% to the current market price.

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See our full analysis for Abbott Labs

Enhancing Growth Prospects With Diversified Revenue Stream

Abbott is Mylan’s largest shareholder, owning 14.5 percent of the generic drug maker’s outstanding shares. Any step taken by Mylan is suppose to benefit Abbott in turn. Similarly, Mylan’s acquisition of Perrigo (PRGO) is expected to enhance the company’s growth prospects. To compete in the generic drug industry, size and scale are very important. This acquisition would help Mylan almost double its current size. It also fits strategically with Mylan’s vision to reach 7 billion customers.

The acquisition would be targeted to diversify across therapeutic areas, dosage forms, and geographies. The acquisition of Perrigo would expand its product portfolio with the addition of store-brand over-the-counter drugs. It will also expand its geographic presence, especially in Europe.

The combination of Mylan and Perrigo will generate a diversified revenue stream. Perrigo has capabilities in extended topical generics primarily. Its portfolio also includes select controlled substances, injectables, hormones, oral solid dosage forms, and oral liquid formulations. Injectables are Mylan’s focus area.

Perrigo’s specialty segment focuses on the treatment of MS (multiple sclerosis) with the drug Tysabri, which it took on when it acquired Elan in 2013. This would complement Mylan’s efforts to develop a generic version of Copaxone, Teva’s (TEVA) flagship drug.

Expanding Reach Through Perrigo’s Network

Perrigo offers a commercial platform that could be used for cross-selling Mylan’s products via new channels. Perrigo’s sales infrastructure was further enhanced with the acquisition of Omega Pharma that added 211,000 pharmacists, 105,000 retail stores, and 4,000 para-pharmacies to its network.

Because of the Omega acquisition, Perrigo would also expand Mylan’s geographic reach across Europe. Omega has a commercial presence in more than 35 countries including the Netherlands, Nordics, Russia, Portugal, Spain, Italy, Germany, and France. Perrigo sales are less geographically concentrated as a result.

All of this will convert into better returns for Abbott’s shareholders because of the company’s minority stake in Mylan NV.

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