Shire Rejecting AbbVie’s Bid Puts It in Play: Real M&A

Want to buy Shire Plc (SHP)? Get in line.

AbbVie Inc. (ABBV) earlier this week revealed a $46.5 billion takeover bid for Shire in the first public acquisition approach for the specialty drugmaker after years of takeover speculation. While Shire rejected the offer, AbbVie is already considering raising it, two people familiar with the matter said. It may have some competition. Bristol-Myers Squibb Co. and Allergan Inc. (AGN) are among possible counterbidders, said Leerink Partners LLC.

American acquirers are on the hunt for cross-border targets that can help them avoid high U.S. corporate taxes. With its Dublin address, Shire fits that bill and also offers suitors an arsenal of fast-growing rare disease treatments that will help boost sales 32 percent over the next three years. Shire may warrant as much as $260 a share in a takeover, 36 percent higher than the U.S. price on June 19, the last trading day before the offer, according to Susquehanna International Group LLP.

“Others who may be considering it are probably likely to take notice and maybe be more aggressive here,” Vamil Divan, a New York-based analyst at Credit Suisse Group AG, said in a phone interview. “There’s certainly going to be a lot of people interested, so ultimately I would think that there’s a price that allows for a deal to get done.”

Shire is the latest takeover target in a record wave of health-care mergers this quarter. There have been about $230 billion of deals proposed or announced in the industry since the end of March, including Medtronic Inc.’s purchase of Covidien Plc this month and Merck & Co.’s takeover of Idenix Pharmaceuticals Inc. at one of the highest premiums on record.

Three Times

AbbVie said in a statement dated June 19 that Shire rejected three escalating offers to buy the maker of attention deficit hyperactivity disorder drugs. Its latest offer consisted of 20.44 pounds in cash and 0.7988 of an AbbVie share for each Shire share. Because the deal is subject to U.K. takeover rules, the company has until July 18 to make a firm offer or will go into a waiting period where it can’t do so for as long as six months.

AbbVie is considering raising its offer a fourth time or presenting its case directly to Shire shareholders, said people familiar with the matter, who asked not to be named because the talks are private.

“I’d be very surprised if this is over,” Alistair Campbell, a London-based analyst at Berenberg Bank, said in a phone interview. “Shire has been speculated as a target for quite some time with many other companies potentially bidding for it. Now that we publicly know AbbVie has made an offer, it may bring other people to the table as well.”

Surprise Bidder

The $85 billion company, which split from Abbott Laboratories, wasn’t an obvious suitor for Shire, said Jean-Francois Comte, managing partner at Lutetia Capital, an event-driven fund in Paris.

“It’s not a name we were looking at,” said Comte, whose firm owns Shire shares. “I’m not surprised by the offer but surprised by the bidder.”

The AbbVie bid lacks a contingent value right that would reward Shire shareholders for the performance of pipeline products and may have too high of an equity component for Shire’s liking, Jason Gerberry, an analyst at Leerink, wrote in a report. Allergan, Bristol-Myers or Pfizer Inc. could step in with offers of their own, Gerberry wrote.

Irish Address

For Allergan, buying Shire and redomiciling in Ireland may help it fend off advances from Valeant Pharmaceuticals International Inc., said Divan of Credit Suisse. Valeant this month began a tender offer for Allergan shares, the first move in its attempted hostile takeover of the Botox-maker.

An Allergan-Shire “combination makes strategic sense,” David Amsellem, a New York-based analyst at Piper Jaffray Cos., said in a phone interview. “That’s a combination that bears watching.”

Pfizer suspended its own effort to redomicile to escape some U.S. corporate taxes earlier this year when AstraZeneca Plc rejected its takeover advances. The pharmaceutical giant’s moves and AbbVie’s attempt at Shire may spur peers to consider entering the bidding for Shire or other tax-inversion candidates before they’re left behind, Divan of Credit Suisse said.

“The fact that these large mega-cap companies are doing inversion deals, or trying to, has to be something that’s resonating,” Divan said. Companies such as Bristol-Myers “have to be thinking about it.”

Representatives for Allergan, Pfizer and Bristol-Myers declined to comment. A representative for Shire didn’t respond to a request for comment.

Shire Value

Shire should command a higher multiple than other recent pharmaceutical targets because of its fast-growing assets and the number of potential acquirers, Andrew Finkelstein, an analyst at Susquehanna, wrote in a report. An acquisition bid of $260 a share may be appropriate, he wrote.

Not only is Shire’s business attractive, its location also makes it even more appealing, Divan of Credit Suisse said.

“Forget the company itself and the business,” he said. “It’s not a bad company, but I think their tax structure really puts them in a very advantageous position to ask for very high premiums relative to what we would expect for this type of deal.”

To contact the reporter on this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editors responsible for this story: Beth Williams at bewilliams@bloomberg.net Whitney Kisling

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