The Tycoon Report

ANOTHER BRICK IN THE WALL: Is it too late to profit from the takeover battle between Mylan Labs and King Pharamaceuticals?

IT STARTED WITH A SIMPLE ENOUGH PROPOSITION.

Mylan Labs (NYSE:MYL), seeking to increase it's competitive position within the generic drug industry, makes a $16.49/share all-stock bid for King Pharmaceuticals (NYSE: KG). The board of King, believing that the offer makes "strategic and financial" sense accepts the offer as fair.

Mylan Labs rejoices.

Enter financier Carl Icahn, the scrappy member of the Forbes 400 list and supposed influence for Oliver Stone's "Gordon Gekko" character in the movie "Wall Street." Believing that Mylan was overpaying for King, he tries to thwart the deal by purchasing a 9.8 percent stake in Mylan and offering to buy Mylan for $20 per share. Mylan Labs cries foul.

Enter financier Richard Perry. The famed money manager, who already owns 7 million shares of King, steps in and one-up's Icahn, purchasing 9.98 percent of Mylan. It's clear that Perry supports the merger and wants to vote his Mylan stake in favor of the deal. Talk about playing two ends against the middle. While the clash of the ego-titans continues, I decided to see if there was any money in it for us.

Here's what I found:

King Pharma is currently trading at $12.42. That's $4 dollars below the agreed upon merger price - a 32 percent discount. Generally, when two companies agree to merge and there is little reason to believe that the Justice Department won't disapprove, there would be a far smaller discount, say 5 - 10 percent, depending on if it's a cash or stock deal.

But this discount is large for two reasons:

1. Icahns purchase has thrown a monkey wrench into the deal, raising a chance that it won't happen.

2. Accounting Investigation: King Pharmaceuticals is being investigated by the SEC and may have to re-state several years of its "historical returns reserves."

Not a pleasant thing, but its more of an accounting issue than a cash flow issue. The real danger is that Mylan, who was well aware of the SEC investigation before it offered to buy King, lowers the acquisition price if the result is bad.

Here's my bet:

**Icahn won't prevail in his quest to purchase Mylan or derail the merger. As a matter of fact, he sounds much less optimistic now that investors such as Perry are challenging his moves.

**The SEC investigation into King will not conclude with a "material" event that will dramatically impact the financials of the company.

**The deal will prob. take 12 months to close from today.

**There is a 75 percent chance this deal gets done.

**If the deal doesn't happen, King will fall down to it's pre merger price and year low of $10 per share.

By purchasing King today, I think youre likely to make 20 percent on your money. Not bad for a years work. Open minds mean larger wallets,