Yeah-I'm out! Will Carl Be?
Mylan to buy back $1.25 bln shares
By Val Brickates Kennedy, MarketWatch
Last Update: 12:59 PM ET June 14, 2005
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BOSTON (MarketWatch) -- In the wake of a failed merger and repeated attempts by investor Carl Icahn to buy out the company, troubled Mylan Laboratories unveiled a massive stock buyback plan on Tuesday and said it would license out a major new product to another drugmaker.
Early Tuesday, Mylan (MYL: news, chart, profile) said it plans to buy back about 25% of its outstanding stock, or up to 48.8 million shares, in a modified "Dutch auction" deal worth $1.25 billion. The generic drugmaker will pay between $18.00 and $20.50 a share.
"This move has taken the fair market value of the stock from $14 a share to around $19," said SG Cowen analyst Ian Sanderson on Tuesday. He added that because the number of shares will now be reduced, any future successful product launches will be "magnified" in the company's quarterly earnings.
Mylan CEO Robert Coury said the move will not only benefit the company but increase returns for shareholders.
"As it relates to our business, the sheer magnitude of this buyback will enhance the impact to earnings per share going forward of any and all new opportunities that we add to our existing base," Coury, Mylan's vice chairman and chief executive officer, said in a statement.
Mylan also announced a major strategic shift, stating it now plans to license out its new hypertension drug nebivolol to another drugmaker rather than try to market the drug itself, which would be costly. The drug would have been one of Mylan's few new branded products.
Mylan had hoped to be able to market the drug in-house by merging with rival King Pharmaceuticals (KG: news, chart, profile) , which would have provided Mylan with a sizeable sales force for the drug. That merger was terminated earlier this year.
Mylan received an approvable letter for nebivolol from the U.S. Food and Drug Administration in April. The company currently is conducting an additional pre-clinical study for nebivolol to support its market application. The drug could likely be approved by mid-2006, said Sanderson.
"The out licensing is a good move," said Sanderson, adding that by having another drugmaker market nebivolol, the company will save 20 to 25 cents a year per share in costs. "Now they can focus on their generics business. They would've been distracted by marketing nebivolol."
Sanderson said that Johnson & Johnson is a leading candidate to license the cardiac medication, which could have peak sales of up to $800 million a year if it ends up being approved for both hypertension and heart failure, as has been Mylan's plan.
Mylan management also reiterated that an outstanding offer by Icahn to purchase Mylan for $20 a share was not credible and "that discussions with him were not in the best interests of the company."
Icahn first made the offer in November, when Mylan was still slated to merge with King. He resubmitted the offer on June 1. Icahn already holds a sizeable stake in the company.
"If the buyback doesn't completely thwart Icahn, it will take a lot of wind out of his sale," said Sanderson. "There's also a chance that they could buy out his position, if he chooses to tender."
Sanderson noted that Icahn reportedly bought most of his Mylan shares for between $17 and $19 a share.
Mylan will pay for the repurchase with cash on hand and $775 million from a $975 million financial commitment from Merrill Lynch Capital Corp. and Merrill Lynch, Pierce, Fenner & Smith, Inc. Merrill Lynch & Co. is the company's financial advisor.
The company also plans to double its annual dividend to 24 cents a share, effective as of the quarter ended June 30.
Mylan shares shot up 9% to $19.25 in midday trade.
Mylan also announced it was closing down its branded-products division Mylan Bertek as a cost-saving measure. Products that had been marketed by Mylan Bertek will now be sold by its Mylan Pharmaceuticals and UDL units.
Sanderson said that Bertek's closure will allow Mylan to save about another 15 cents per share a year in expenses.
"It also allows them to funnel relatively scarce R&D investment resources to the generics side, which is very important," said Sanderson.
Mylan had reported sharply lower earnings last month, attributing an almost 50% drop in its bottom line to increased competition and expenses associated with the merger termination.
Looking forward, Mylan said that it now expects to report adjusted 2006 earnings per share of between 92 cents and $1.15, on revenue of between $1.14 billion and $1.34 billion. Mylan's fiscal year began on April 1. For fiscal 2007, Mylan said it will have adjusted earnings of $1.20 and $1.74 a share, on revenue of $1.25 billion to $1.60 billion.
A poll of analysts by Thomson First Call estimated, on average, the company would have 2006 adjusted earnings of 81 cents a share, on revenue of $1.36 billion, and 2007 adjusted earnings of 94 cents a share, on revenue of $1.47. Per share figures exclude the impact of the share buyback.
Val Brickates Kennedy is a reporter for MarketWatch in Boston. |
