If AbbVie Wants Shire’s Low Tax Rate, Price May Go Up
AbbVie, the North Chicago, Illinois-based maker of the top-selling arthritis drug Humira, made a fourth offer yesterday to buy Shire Plc for 30.1 billion pounds ($51.6 billion). The offer values the Dublin-based company 48 percent higher than before AbbVie first approached Shire in May.
“I definitely don’t think it’s enough to get the deal done,” Vamil Divan, a New York-based analyst at Credit Suisse, said in a telephone interview. Shire’s foreign tax domicile is “a critical component that gives them a little more power.”
By acquiring Shire, which splits operations between the U.S. and the U.K., and moving its legal domicile to the U.K., AbbVie would save about $1.3 billion by 2020 as its tax rate falls to 13 percent from 22 percent, according to Mark Purcell, a Barclays analyst.
To reap that benefit, the U.S. drugmaker may need to bid at least 55 pounds a share, said Douglas Miehm, an analyst at RBC Capital Markets. Yesterday’s offer valued Shire at 51.15 pounds a share in cash and stock.
AbbVie’s Chief Executive Officer Rick Gonzalez said in a telephone interview yesterday that he’s spoken to most of Shire’s major shareholders, and that in his opinion, they back a deal. AbbVie backtracked from that assertion today. The company issued a statement saying that it hasn’t received written commitments of support from shareholders and, without those, U.K. takeover rules don’t allow the company to claim backing from investors.
Shire fell 0.1 percent to 45.27 pounds at 8:10 a.m. in London.
AbbVie made three previous bids of as much as 27.3 billion pounds, a price Shire’s board unanimously rejected, saying it undervalued the company’s prospects for increasing sales of its rare-disease medicines.
AbbVie’s attempted cross-border acquisition is the latest proposed by a U.S. company seeking lower taxes and the freedom to spend overseas cash. On June 15, Medtronic Inc. agreed to buy Dublin-based Covidien Plc, a maker of medical equipment. Pfizer Inc. also bid $117 billion for London-based AstraZeneca Plc -- and was rejected -- in what would have been the largest deal in drug industry history.
Medtronic’s offer represented a 29 percent premium on Covidien’s shares before the deal was announced. Pfizer’s offer had a 53 percent premium, compared with AstraZeneca’s price when a transaction was first proposed in January.
The addition of Shire’s array of rare disease treatments and drugs for attention deficit hyperactivity disorder would also diversify AbbVie’s product portfolio, which is currently dominated by Humira, the rheumatoid arthritis injection.
Shire said its board will meet to discuss the bid. The company wasn’t given AbbVie’s latest proposal ahead of time, Shire said yesterday in a statement.
Under U.K. rules, AbbVie has until July 18 to make a firm offer or walk away. If AbbVie walks away, it’s precluded in most cases from making another bid for as long as six months.
Yesterday’s proposal, which is an 11 percent increase over AbbVie’s previous one, “should help get both parties closer to negotiating a final offer,” Miehm, the RBC Capital analyst, wrote yesterday in a note to clients. “We believe that if both companies were to sit down, a clearing price for the deal could be in the 55-58-pound range.”
Credit Suisse’s Divan said the final price may even reach 60 pounds a share, though the market may not support a bid that high, he said.
“It’s not a cheap valuation for sure,” Jean-François Comte, managing partner at Paris hedge fund Lutetia Capital, who manages about $153 million, including Shire stock, said in a telephone interview. Still, Comte said a higher offer would be justified given that Shire is “a high-growth company with unique assets in the space, plus with potential tax optimization for some buyers.”
Gonzalez said he hasn’t ruled out going hostile, which may force Shire’s board to the negotiating table, Guillaume Van Renterghem, an analyst at UBS AG, said in a telephone interview.
“From a Shire board point of view, you know that if you don’t sit down to try to get toward 55 pounds per share, they’re going to go hostile at this level, and given the share price, probably they’re going to get it,” he said.
Jeffrey Holford, a New York-based analyst at Jefferies LLC, said the tax incentive could encourage AbbVie to pursue a hostile bid.
“We see the possibility that AbbVie could go hostile, given that seeing the books is less important to establish the benefits of the deal than would usually be the case,” he wrote yesterday in a note to clients.
“The likelihood of anybody coming with a higher offer to me seems remote,” Van Renterghem said. “Allergan simply can’t afford it, it’s out of their league. For Amgen it doesn’t make sense anymore at this level. AbbVie’s almost the best fit.”
To contact the editors responsible for this story: Reg Gale at email@example.com Drew Armstrong, Andrew Pollack