Mylan Inc Background• Mylan was the second-largest US generic drug maker as of 2006. • The company is headquartered in Pennsylvania, USA, and is involved in developing,

licensing, manufacturing, marketing, and distributing many generic and proprietary drugs.

• Financial Highlights 2006:Total Revenues: $1.3 billionEBIT: $284.9 millionNet Earnings: $184.5 millionEmployees: 2,800 (approx.)

Matrix Laboratories Ltd Background

• Matrix Laboratories Limited is a public limited company listed on BSE and NSE, and is engaged in the manufacture of Active Pharmaceutical Ingredients (APIs) and Solid Oral Dosage Forms.

• It was established in February 2001.

• Matrix is one of the fastest growing API manufacturers in India and focuses on regulated markets such as U.S. and EU.

• Financial Highlights 2006:Total Revenues: $261.6 millionEBIT: $59.8 millionNet Earnings: $45.0 millionEmployees: 2,300 (approx.)

The Merger• In 2002, Mylan achieved an important milestone, generating sales of more than $1

billion. But Mylan was still a mid-size company, operating in a consolidating industry.

• Its leaders recognized the need to augment growth with acquisitions.• Mylan went global in 2006 in order to create massive scale in its operations. • First step: Mylan acquired a controlling interest in Matrix Laboratories.• Matrix had low-cost manufacturing facilities in India and China and marketing

capabilities in Western Europe and Africa. • Mylan acquired up to 71.5% of Matrix's shares outstanding:

– Mylan acquired approximately 51.5% of Matrix's shares outstanding for Rs. 306 per share in cash (From Newbridge, Temasek and N. Prasad).

– In addition, Mylan made an open offer to Matrix's remaining shareholders to acquire up to 20% of Matrix's shares outstanding at the same Rs. 306 per share price in cash.

– $164 million of proceeds used by Newbridge, Temasek, and N. Prasad to purchase newly issued MYL equity @ $20.85 per share.

• The transaction was funded using Mylan's existing revolving credit facility and cash on hand.

The Merger Contd..

The Merger: Strategic Rationale• Mylan Benefits:

– Significant presence in important emerging pharmaceutical markets, including India, China, and Africa.

– A European footprint and distribution network through Matrix's Docpharma subsidiary.

– Backward Vertical Integration: Combining Matrix's active pharmaceutical ingredient (API) and drug development business with Mylan's expertise in finished dosage forms (FDFs).

– Expansion of capabilities in a number of key areas including products with higher barriers to entry and long-term growth opportunities (anti-virals).

– Ability to pursue a broader portfolio of new products at lower costs. – Significant cost savings through Matrix's API manufacturing platform

• Matrix benefits:– Strong U.S. Presence– Expanded production capabilities and manufacturing capacity– Industry-leading expertise in product development and process optimization.

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Organizational Structure Post Merger

• Robert J. Coury, Vice Chairman and CEO of Mylan, will assume additional responsibilities of Non-Executive Chairman of Matrix.

• N. Prasad, Executive Chairman of Matrix, will remain on Matrix board as Non-Executive Vice Chairman.

• Mylan board of directors will be expanded to 10 members; N. Prasad will join the Mylan board of directors and the executive management team as Head of Global Strategies in the Office of the CEO.

• Rajiv Malik will remain CEO of Matrix.

• Stijn Van Rompay, Co-Founder of Docpharma, will remain with Docpharma.

Post Merger• 2009: Mylan purchased thee remaining shares of Matrix and delisted it.

• 2010: Renamed Matrix to Mylan Pharmaceuticlas Pvt Ltd.

• 2011: Both the firms have workforce of more than 17,000 employees and commercial sales in more than 150 countries and territories.– Since Mylan's acquisition, Matrix's workforce has grown from nearly 2300

employees to more than 8500 employees.

References• http://www.mylan.com/about_us/company_history.aspx• http://investor.mylan.com/releasedetail.cfm?ReleaseID=407011• http://www.ijprd.com/MERGERS%20&%20ACQUISITIONS%20IN%20INDIAN%20PH

ARMA_A%20REVIEW.pdf• http://www.livemint.com/2011/05/28001753/Mylan-plans-direct-entry-into.html• http://www.moneycontrol.com/stocks/companydetails/hist_graph.php

Impact of M&A Transaction• The primary concern is with the price of drugs.

– India has traditionally imposed controls on the cost of life-saving medications. – But the number of regulated drugs has come down from 347 in the 1970s to

around 70 now. – If largely multinational corporations are left in the industry, they could opt to

collectively withdraw certain drugs from the market unless they are allowed a price hike.

• Secondly, Indian companies are concentrating their research on diseases that are of greatest concern to the Indian population. – If multinationals take over, the thrust could well shift to western lifestyle

diseases. • The others concerns are:

– Consolidation of market shares– Anti-Competitive in nature– High price and reduced output

Levels of Integration• There are 3 levels of integration that are currently being sought in the generics

industry.– Back-end manufacturing capability (API/Formulation).– Product Integration.– Front-end (marketing and distribution) in the developed world.

• The US and European generics companies are looking for alliances at the back end of the chain, which could allow them to offset any manufacturing cost advantage held by companies in the developing markets.

• The Indian companies are looking at front end integration as building a front end distribution set up from scratch could take significant time.

• The product side integration is common to both sides, the weaker US/European generics companies looking at anyone that could offer a basket of products.

Conclusion• Best way to get ahead is to expand ownership boundaries through mergers and

acquisitions.• Investors can take comfort in the idea that a merger will deliver enhanced market

power.• M&A comes in all shapes and sizes, investors need to consider the complex issues

involved in M&A.• The most beneficial form involves a complete analysis of the costs and benefits

associated with the deals.

Future Trends• Given the increasing spate of mergers and acquisitions in the global

pharmaceutical sector, the valuations are at an all time peak.– There is too much money chasing too few targets.

• Going forward this trend would slow down as valuations are cyclical in nature.

• The consolidation trend will continue, with Indian pharmaceutical players playing a major role. – Indian pharmaceutical companies have spent close to $1.4 bn in acquiring

companies globally in the past 18 months. – With access to capital, higher staying power because of low costs, and

managements willing to globalize, this trend will continue.