Mylan laboratories proposed merger with king pharmaceutical Harvard Case Solution & Analysis

Question No. 1: Does this deal create value? Is this a good deal for Mylan? For King?


The idea behind the initiation of the Mylan laboratories was generated in the mind of two Ex. U.S. Army colleagues Milan Puskar and Dan Panozbegan in 1961 in West Virginia, with a single office acted as the distributor but with help of hardworking of the management and the employees, very soon awarded certificate by FDA to make their own braded drugs. The company applied to SCE in 1973 for registration as the Public Company and soon in 1980, the company have achieved success and rapid expansion programs as both manufacturer and the distributor earned a brighter place in the New York Stock Exchange. The company become first ever generic manufacturer in the World to patent its own drug called anti – hypertensive Maxizde. The company generated sales over $1 billion in 2002. The company went to merge with one of the leading pharmaceutical company in the industry, King Pharmaceuticals Incorporation. But the current value of the King Pharmaceuticals Inc. were decreased by 24% from the last 4 years. After that the company went under investigation by the SEC over possible Medicaid pricing rules violation. Because of these and some other investigations, the firm was ordered to restate and recalculate its 2002 earnings and that resulted in the decline of around 23% per share.

After that incident, the company had to withdraw is 2004 earnings and restate it accordingly. Since, then the CEO of the company was under serious pressure from the shareholders of the company because of his policies the company was unable to generate revenues as expected. As the shareholders’ value became half over the last 4 years value. The sales of the main drugs of the King were even lower than what was expected and on the other hand, the new drugs were remained weak. The CEO of the company resigned from his post which was not only the result of the investigation over the company, but the CEO was under the separate investigation by the SEC over the wrongful disclosure about the Related Parties Transactions. The stocks were also on a high note following the resignation of the CEO.

Mylan Company proposed the King Pharmaceuticals Inc. to a merger with an option to issue 0.9 shares of the Mylan for every 1 shares of the King Pharmaceuticals Inc. The management of the Mylan Company offered a price of $16.659 for each shares after the evaluation of the price of Mylan Company stated at the last trading day before the announcement, i.e. $18.51. Since, this price represented a huge amount of premium to be paid to the shareholders of the King Company. One of the well-known investor and corporate raider Carl Icahn, who has around 9.8% of Mylan stock, opposed the project as the value offered by the Mylan’s Management was too high for the King’s shareholders. On the other hand, another investor Richard Perry quickly purchased around 9.9% of Mylan’s stocks, because he was in favor of the deal.

But as the studies and evaluation suggests that the view of the Carl Icahn was close to the reality and the Mylan Company’s proposed price was too high, that could not even add value to the wealth of the Mylan Company’s shareholders. As shown in the appendices, the offered price was too high when compared to the prevailing price of the King Pharmaceuticals Inc. stocks. Resulting in a premium of around $6.29 of every shares purchased by the Mylan Company. On the other hand, the profits of the Mylan Company would decrease by $345.77 million.

Question No. 2: Shareholders in both Mylan and King must vote in favor of the merger for it to go ahead. What does the reaction of the firms’ stock prices to the announcement of the merger suggest about how each group should vote?


After the careful analysis of the proposed project of the merger of King Pharmaceuticals Inc. by the Mylan Company, the shareholders of the Mylan Company was not happy at all since, the management of the company have offered too much for too less. The premium was around 61% of the price of stocks of the King Pharmaceuticals Inc. The economic and financial conditions of the King Pharmaceuticals Inc...............................

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