Mylan Pharmaceuticals N.V. (Mylan) is a global generic and specialty pharmaceuticals company domiciled in the Netherlands, with principal executive offices in Hatfield, Hertfordshire, UK and a "Global Center" in Canonsburg, Pennsylvania, US. In 2007, Mylan acquired a controlling interest in India-based Matrix Laboratories Limited, a top producer of active pharmaceutical ingredients (APIs) for generic drugs, and the generics business of Germany-based Merck KGaA.

In July 2014, Mylan and Abbott Laboratories announced an agreement under which Mylan would buy Abbott's generic drugs business in developed markets for stock valued at about $5.3 billion. Mylan acquired Mumbai based Famy Care and expand its presence in the market for women's contraceptives at about $750 million. In February 2016, the company announced it would acquire Meda for $9.9 billion.In May of the same year the company announced it would acquire Renaissance Acquisition Holdings dermatology division for up to $1 billion.

Through these acquisitions, Mylan grew from the third-largest generic and pharmaceuticals company in the United States to the second-largest generic and specialty pharmaceuticals company in the world.

Mylan went public on the OTC market in February 1973. It is listed on the NASDAQ, and its shares are a component of the NASDAQ Biotechnology and the S&P 500 indices.

The company develops and produces medicines for a wide range of medical disciplines, including oncology, anaphylaxis, antiretrovirals, cardiovascular, respiratory, dermatology, immunology, anesthesia and pain management, infectious disease, gastroenterology, diabetology/endocrinology, and women's healthcare.

For the year ending 12/31/2019 Mylan generated revenue of $11.5 Bn, 36% from North America, 35% from Europe, and 28% from the Rest of the World. Free cash flow was $2.1 Bn down from $2.7 Bn the previous year, the result of costs associated with the launch of $1.0 Bn in new products.

Given the acquisitive nature of the Company, Investment bankers meet constantly with Mylan's Head Of Corporate Development pitching ideas on companies they might acquire to continue to grow. In these meetings the bankers typically will cover the following topics: Target analysis (who are they recommending and why), and the means through which they execute the acquisition.

In one such meeting a company named Emergent Biosolutions was proposed as a potentially synergistic opportunity to expand Mylan's platform.

Emergent BioSolutions Inc. (EBS) is a global life sciences company seeking to protect and enhance life by focusing on providing specialty products for civilian and military populations that address accidental, intentional, and naturally occurring public health threats. They produce vaccines, therapeutics, and medical devices that address infectious diseases and emerging health crises. Their products include drugs for smallpox, anthrax, botulism, cholera, and Typhoid.

For the year ending 12/31/2019 EBS had revenue of $1.1 Bn, Net income of $152MM, and EBITDA of $280MM. The Company's TEV is currently $ 2.0 Bn.

As part of the sales pitch to Mylan the Bankers highlighted the following points:

EBS products, countermeasures for biological and chemical threats represents an opportunity to tap into a new segment and market

EBS conducts a large portion of their business under Government and Military contracts

Their existing customer base represents a new segment of the healthcare industry for Mylan

Mylan can synergistically expand sales to existing customers who are not currently customers of EBS

Mylan's size and financial strength will allow for additional investment into Bioscience.

EBS patents and technology are likely undervalued

EBS, like Mylan has been acquisitive in their Bioscience space

Profit margins for EBS have exceeded 20% the past 3 years

The Bankers also did an analysis of the effect of various sized acquisitions on their credit ratings (balance sheet management) and concluded that a target priced under $2.3 Bn would allow them to maintain their current credit rating with Moody's and S&P (BBB3/BBB-) and not cross over into a high-yield credit profile. The Bankers estimate the cost to acquire EBS should be no more than $2.25 Bn.

If Mylan was willing to be downgrade one notch then the target size could increase to $3.1 Bn.

At fiscal year end 2019 Mylan had $12.7 Bn in debt outstanding. The incremental debt proposed by the bankers would bring their debt total to approximately $15 Bn. 2019 adjusted EBITDA for Mylan was $3.54 Bn. Subsequent Leverage was 3.6X. The acquisition related debt would bring Leverage up to 4.25X. Mylan 2020 EBITDA is projected to be similar to 2019.

Adding in the projected EBITDA of EBS for 2020 of $300MM leverage post-acquisition would decline to 3.9X. The Bankers projected Mylan would be able to bring total Debt down by $1.2 Bn in 2020 reducing leverage to 3.6X at year end 2020, similar to existing leverage at year end 2019.

The Bankers are recommending to the Company that they do a two step bank syndication where in step one their institution underwrite the entire deal in a Bridge financing of up to $2.3 Bn. In step two the Bankers are recommending syndicating the Bridge to Key Relationship Lenders to Mylan. The Bankers expect all relationship Lenders to Mylan will participate with invitations going out to 14 additional Lenders for a total Syndication group of 15 institutions. The proposed bridge would have two parts, $1.5 Bn Bridge to the capital markets, and an $800MM 4 year term loan.

After syndicating the Bridge, and either before or after the acquisition is consummated, the Bankers are recommending the Company issue $1.5 Bn in debt in the capital markets. They are recommending two tranches, a 5 year and a 10 year tranche. This recommendation is based on Mylan's existing debt profile which is as follows:

2020$500MM

2021$2.25Bn

2022$0

2023$1.25Bn

2024$800MM (4 year term loan)

2025$0

2026$2.25Bn

2027$0

2028$700MM

The Bankers are recommending a 4 year Term Loan in an amount of $800MM for three primary reasons: 1) it is prepayable; 2) it would be attractively priced; 3) it would not meaningfully stretch the Lenders capacity.

1.Does EBS represents an attractive acquisition target for Mylan? Why or why not?