Mylan Inc (NASDAQ:MYL)’s stock peaked this morning and then slowly settled down however it is trading higher than what it was last Friday. The reason is simple, it has got a way to save taxes by merging few unit with Abbott Laboratories (NYSE:ABT)’s European operations.
CNBC’s David Faber was reporting this and he said that this deal is Mylan Inc (NASDAQ:MYL)’s way of tax inversion. He pointed out how often companies show lower earnings when their tax jurisdictions change by mergers and acquisitions. The deal between Mylan Inc (NASDAQ:MYL) and Abbott Laboratories (NYSE:ABT) is a similar one and it can save a lot of taxes for the company.
“Mylan has been looking for an inversion for a long time and it failed to find one until it finally inked a deal with Abbott” Faber mentioned.
According to him, the deal is an interesting one and there are reasons for that. Few of Abbott Laboratories (NYSE:ABT)’s drugs sell in the European market and Japan and none of them are in patent currently. However these drugs account for about $1.9 billion in revenues and Mylan Inc (NASDAQ:MYL) talked in with about $600 million in EBIDTA once they take over the portfolio. Both the companies would be exchanging $5.3 billion worth of stock.
Abbott Laboratories (NYSE:ABT) would receive about 21% stake in the new company equivalent to 105 million shares worth $5.3 billion. The deal is expected to close in 2015 Q1. There is no debt in this deal as they are exchanging the stock and lowering the leverage ratio because the company takes in EBIDTA. With this deal, Mylan Inc (NASDAQ:MYL) ends up in Netherlands where it can chose the tax jurisdiction between UK or Ireland.
“I think you can plan, for years to come about what you want to do and by the way with lower leverage ratio, Mylan is taking about more acquisitions in the future.” Faber mentioned.
So Mylan Inc (NASDAQ:MYL) seems to have found the key inversion it was looking for years. So the case here is not where it moves on new products. The company would see products that are around for years as generics and it won’t push the stock rapidly like few other deals. However there would be more cashflow because of added 500 basis points and reduced tax rate.