Mylan to Buy Swedish Company? - Analyst Blog

According to a report in the Financial Times, Mylan, Inc. MYL is looking to acquire Swedish company Meda AB. People familiar with the situation commented that the U.S. based generic company has appointed advisers regarding the deal to buy the Swedish drug maker primarily through stock. However, sources said that the entire process was in the nascent stage with nothing concrete being finalized. Mylan's shares were up in pre-market trading due to the rumors.

The tax bill at Mylan, which currently has a market cap of $18.5 billion, would be trimmed significantly in the event of the deal materializing. The acquisition of Meda would create a pharmaceutical company worth in excess of $23 billion. Moreover, according to the report Mylan would pay a significant premium over the Swedish company's Thursday's closing price. Meda AB currently has a market value of $4.5 billion.

The practice of reducing tax liability by making an international acquisition and shifting the base there is highly prevalent among U.S. companies. Late last year, Perrigo Company plc PRGO relocated its headquarters to Ireland by acquiring Elan thereby avoiding U.S. corporate tax obligations. However, this policy is under attack with President Barack Obama outlining proposals in the March budget to end this practice of inversions.

Mylan has been quite active on the acquisition front lately. Last year, the company acquired Agila Specialties Private Ltd. – the injectable drugs division of India's Strides Arcolab Ltd. – for up to $1.75 billion, including $250 million in contingent consideration. The deal has strengthened Mylan's presence in the high potential generic injectables market. Mylan had stated while releasing its fourth quarter 2013 results in February that it intends to make another substantial transaction in 2014. Will it be Meda? We await confirmation on that.

Mylan carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the health care sector include Mallinckrodt plc MNK and Dr. Reddy's Laboratories Ltd. RDY. Both companies carry Zacks Rank #1 (Strong Buy).