By Sven Nordenstam and Mia Shanley
STOCKHOLM (Reuters) - Swedish generic drugmaker Meda AB rejected a takeover approach by U.S. rival Mylan Inc to create a combined company worth around $24 billion.
The generic drugs sector has seen a wave of mergers recently as companies selling popular copycat versions of blockbuster medicines have been hit by a dwindling number of patent expirations and are looking to cut costs.
Meda said on Friday it had been contacted about an indicative proposal to combine the two businesses but its board had decided to reject the proposal.
"All continued discussions between Meda and Mylan have been terminated without further actions," it said in a statement.
Shares in Meda closed up 14 percent at 110.6 Swedish crowns valuing the company at 33.4 billion Swedish crowns ($5.1 billion) while Mylan stock rose 4.2 percent to $51.94 by 1627 GMT valuing that firm at $19.3 billion.
Media reports said Mylan was exploring a bid at a significant premium.
"Given that this deal makes too much financial sense for both parties, we believe that there is an exceedingly high likelihood that it still will occur," analysts at Cowen said in a research note.
Mylan, which had already said it wanted to make a big acquisition this year, said it was "considering a wide range of possible opportunities", but would not comment further.
Meda, which makes specialty products, over-the-counter drugs and branded generics, has long been viewed as a takeover target in a rapidly consolidating generics drug sector where economies of scale are important.
If any deal was pitched at a level similar to Actavis's bid for Forest Labs in February, it would imply a 25 percent premium to Meda's share price before the news, giving a $7.9 billion deal value, including Meda's $2.3 billion in debt.
Buying Meda would boost Mylan's presence outside the United States and give it access to Meda's distribution channels in Europe and some emerging markets, where Meda has grown quickly in recent years.
An acquisition would also boost Mylan's position in specialty pharmaceuticals where it focuses on respiratory and allergy medicines, which is a key area for Meda as well.
Of Meda's $2 billion 2013 sales, more than 80 percent were outside the United States.
Among potential buyers, Mylan was well placed to make a move, bankers and analysts said. It could also take advantage of lower corporate tax rates as the company's purchase would increase the percentage of revenues coming from overseas, allowing it to move its tax domicile outside of the U.S.
Rivals Actavis and Valeant already lowered their tax rates with moves to Ireland. Moreover, bankers noted, Valeant recently bought Bausch & Lomb which it is busy integrating, whereas Actavis' $25 billion acquisition of Forest has not yet closed.
A year ago India's Sun Pharmaceutical Industries Ltd held talks to buy Meda for between $5 billion and $6 billion in a bid to boost its generics business in developed markets, sources with knowledge of the matter said at the time.
Analysts in Mumbai said they doubted Sun would be interested in buying Meda now, since the talks last year foundered mainly on valuation and Meda's stock price has risen sharply since its $4 billion market valuation at the time.
Both Meda and Mylan are valued at around 10 times 2014 forecast earnings before interest, depreciation and amortization (EBITDA), including debt, according to Thomson Reuters data.
"Sun has not done any expensive acquisitions. It doesn't look like a valuation number that Sun Pharma is generally comfortable with," said Aditya Khemka of Ambit Capital.
A Sun Pharma spokesman declined to comment.
Meda's biggest owner is Stena Sessan Rederi AB, controlled by the Olsson business family, which owns 22.7 percent of shares meaning it could block any takeover attempt.
The generic drugs sector has had a good run in the past decade by selling copycat versions of medicines but as times have got harder, growth and profit margins have come under pressure, with mergers seen as one way to improve efficiencies.
Recent deals in the sector have led to savings of about 8 percent of sales, analysts estimate, and Mylan said in February it was open to looking at makers of branded drugs and deals outside of the United States to add to future earnings.
The Pennsylvania-based firm, which last year bought Agila, a unit of India's Strides Arcolab Ltd for $1.6 billion, had appointed advisers to help it put together a deal for Meda, people familiar with the matter said.
Chief Executive Heather Bresch told analysts in February the company planned a major transaction this year that would add to future earnings.
($1 = 6.5481 Swedish crowns)
(Additional reporting by Ben Hirschler and Sophie Sassard in London, Zeba Siddiqui in Mumbai, and Caroline Humer and Soyoung Kim in New York; Editing by David Holmes and Elaine Hardcastle)