Pfizer (NYSE:PFE) plans to absorb Mylan (NSDQ:MYL) as part of the spinout of its Upjohn off-patent drugs business in an all-stock deal.
The deal, structured to avoid taxes on any gains from the spinout, would see each Mylan share converted into a share of the as-yet-unnamed new company. Pfizer stockholders would then own 57% of the new firm, with Mylan investors owning the remaining 43%, the companies said. The transaction is expected to close in mid-2020.
The transaction’s reverse Morris trust structure – in which the Upjohn business is spun out and merged with Mylan – means that Pfizer will not have to pay taxes on the $12 million in debt it plans to issue; Mylan shareholders will be subject to tax, the companies said. The combination would have a $24.5 billion debt load and generate $19 billion to $20 billion a year in revenues if the deal is consummated. Adjusted earnings before interest, taxes, debt & amortization are forecast to be between $7.5 billion and $8.0 billion, including some $1 billion in “phased synergies” by 2023.
Longtime Mylan CEO Robert Coury, who is still chairman, will assume that role for the new outfit. Upjohn president Michael Goettler is slated to take the corner office, with Mylan president Rajiv Malik also reprising his current position. Mylan CEO Heather Bresch is due to retire and CFO Ken Parks will bow out, the companies said.
“The new company, which combines the unique assets of Mylan with the iconic brands of Pfizer’s Upjohn business, will not only accelerate our mission to serve the world’s changing health needs, but also further unlock the true value of our platform while delivering attractive returns to shareholders for many years to come. Importantly, the combined organization will have a presence across nearly every continent and major market, establishing a new leadership position in Asia, and offering products capable of treating all major therapeutic areas,” Coury said in prepared remarks. “The combination announced today also comes with Mylan CEO Heather Bresch’s decision to announce her intention to retire upon deal close after 27 years of distinguished service and leadership within Mylan. Heather has left a significant positive mark to the benefit of our company, patients and shareholders in so many ways including through her leadership and execution of our efforts to create a more sustainable Mylan. Her leadership helped to further position Mylan for this important milestone. Her presence and her impact will not only be missed by our board of directors, but also by our entire workforce of 35,000 across the world. We wish her much success with her future endeavors.”
“Mylan was founded nearly 60 years ago with the core purpose to provide access to medicine. Thanks to the hard work and dedication of thousands of Mylan employees and the transformative vision from leaders past and present, including board chair Robert Coury, Mylan has made significant strides toward providing that same access at a global level for the world’s 7 billion people. And now, the creation of this new company introduces a powerful expanded platform with the potential for patient impact that will be truly transformative and unique within the industry. Nearly eight years after becoming CEO, I’m proud to say that this milestone represents the culmination of the goals I set for myself when I challenged Mylan and our amazing workforce to set new standards in healthcare. And so, as the company prepares to set out on this exciting new journey under the next era of leadership, I too have decided to pursue a new chapter – one that will continue to be focused on serving people, patients and public health,” Bresch added.
“We are creating a new champion for global health – one poised to bring world-class medicines to patients across a wide range of therapeutic areas. I believe that Mylan’s unique profile and strategy has made it the obvious partner of choice in creating this powerful combination. By bringing Mylan’s growth assets to Upjohn’s growth markets, we will create a financially strong company with true global reach. I’m also excited about the management team, which combines strong executive talent from both companies, whose commitment to improving global health for patients and to delivering returns to shareholders are great assets for the new company. For Pfizer, this transaction represents our sharpened focus on innovative medicines and is a testament to our purpose – breakthroughs that change patients’ lives. At the same time, we’ll maintain the financial flexibility to advance our strong pipeline, invest for growth and continue to return capital to our shareholders,” Pfizer CEO Albert Bourla said in a press release.
Centerview Partners and PJT Partners advised Mylan on the deal, with Cravath, Swaine & Moore and NautaDutilh as counsel. Goldman, Sachs and Guggenheim Securities advised Pfizer, with Wachtell, Lipton, Rosen & Katz and De Brauw Blackstone Westbroek as counsel and Davis Polk and Wardwell as special tax counsel.
Pfizer’s Q2 earnings top estimates but revenues miss the mark
Pfizer, which also reported its second-quarter results today, revised its pro forma revenue forecast for 2020, saying it expects to report $40 billion on the top line.
Profits grew 30.3% to $5.05 billion, or 89¢ per share, on a sales decline of -1.5% to $13.26 billion for the three months ended June 30, compared with Q2 2018. Adjusted to exclude one-time items, earnings per share were 80¢, a full nickel ahead of the consensus forecast on Wall Street, where analysts were looking for sales of $13.40 billion.
“We reported solid second-quarter 2019 financial results, with total company revenues up 2% operationally. Performance was primarily driven by 6% volume-driven operational growth in our biopharma business, including continued growth of key brands such as Ibrance, Eliquis and Xeljanz, as well as in emerging markets. This growth was partially offset primarily by the impact of generic and biosimilar competition for products that have lost marketing exclusivity, as well as the expected decline of Upjohn revenues in China,” Bourla said in prepared remarks. “Following the close of the proposed transaction, I expect Pfizer will be positioned to deliver revenue and adjusted diluted EPS growth through the mid-2020s that is among the industry leaders while continuing to allocate significant capital directly to shareholders, primarily through dividends.”
PFE shares were off -1.8% to $42.30 apiece today shortly after the markets opened. MYL shares gained 13.5% to $20.95 each.