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11 maart 2016

Mylan cannot ignore its shareholders

Mylan cannot ignore its shareholders
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VEB and the European Investors' Association have again put questions to Mylan N.V. about its decision not to ask its shareholders' approval for the bid on the outstanding shares in Meda AB.

VEB and European Investors had already raised the matter on 26 February 2016. Mylan responded to our questions on 29 February 2016. Mylan's response however, is not convincing. In their letter of 10 March 2016 VEB and European Investors have explained why in detail.

VEB and European Investors are intending to pursue this matter, because it could set a dangerous precedent and, on top of that, many Dutch and European investors invest in Mylan. In many cases through index trackers or mutual funds. 

Dutch company law which applies to Mylan as a Dutch N.V. provides for a right of approval by the general meeting for decisions which substantially change the identity and character of a company (Article 2:107a(1) of the Dutch Civil Code (DCC)). This will in any case apply when the value of the interest to be acquired amounts to at least a third of Mylan's own assets as presented in the (consolidated) balance sheet in the last annual accounts adopted by the shareholding meeting.

For Mylan this means that it must base its assessment on the financial statements of the company which it set up in 2014 to facilitate its move to the Netherlands (partly for tax reasons). This company was named New Moon B.V. On 27 February 2015 it was converted and renamed to Mylan N.V., the current top holding of the Mylan group. The balance sheet of New Moon B.V. is fairly small in proportion to the size of the Mylan group as a whole (USD one billion). Given that the total value of the Meda acquisition amounts to USD 9.9 billion (the enterprise value), Mylan more than exceeds the statutory threshold for mandatory shareholder approval. The enterprise value being the purchase price of USD 7.2 billion to be paid to Meda's shareholders for the shares in Meda, together with Meda's nett debts of USD 2.7 billion. This includes a reference to a document that Mylan submitted to the Securities and Exchange Commission (SEC), the U.S. agency responsible for enforcing and regulating stock exchange matters. That document contains figures for the entire Mylan company as well as those of an entity bought from Abbott Laboratories in 2014 which Mylan was only permitted to add to its own activities in February 2015.

Even if it were possible to stretch the law this far, then Mylan could assume an own asset value of USD 22.8 billion. Given that the enterprise value is USD 9.9 billion, this still meets the one third threshold for mandatory shareholder approval. 

Mylan argues that it is not the enterprise value that should be used when calculating the threshold, but the purchase price of USD 7.2 billion. This, however, fails to take into account the financial and other consequences to Mylan and its shareholders arising from the transaction. In this context, Meda's debt position is also relevant. How closely this is related is shown in the table below in which the various alternatives for the asset value of Mylan are compared with the various alternatives for the value of the transaction:

  Mylan asset value (MAV) Value of the participating interest (VPI)  
Assets New Moon B.V. - year end 2014  USD  purchase price   USD 716%
 USD  offer price + Meda net debt (enterprise value)   USD       9.933.696.143 993%
Assets Mylan - year end 2014  USD 15.820.500.000  offer price + Meda net debt (enterprise value)   USD 45%
 USD 15.820.500.000  ondernemingswaarde   USD       9.933.696.143 63%
Assets Mylan (incl. Abbott-deel) - year end 2014  USD 22.800.000.000  offer price + Meda net debt (enterprise value)   USD 31%
 USD 22.800.000.000  ondernemingswaarde   USD       9.933.696.143 44%

VEB and European Investors take the view that Mylan's interpretation of the law is incorrect and contrary to the intentions of the legislator. Mylan appears to be be fundamentally disregarding the rights of its shareholders. If Mylan remains unwilling to alter its position, VEB and European Investors will consider appropriate legal action.

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