DUBLIN, Ireland—While Valeant’s attempted takeover of Allergan Inc. continues, AbbVie finally has the deal it’s been seeking since May: the boards of directors of AbbVie and Shire plc have reached an agreement for a combination of their two companies.
For the transaction, AbbVie has formed a new company, New AbbVie, which will be located in New Jersey. Once the transaction closes, the new company will become the holding company of the Shire Group and the AbbVie Group. Under the merger, Shire shareholders stand to receive £24.44 (approximately $41.76) in cash and 0.8960 New AbbVie shares for each share of Shire stock they hold. All told, the deal is worth $54.8 billion. AbbVie expects the transaction to be accretive to its adjusted earnings per share in the first year following completion, growing to above $1 per share by 2020. The merger is subject to shareholder approval and antitrust clearances, among other customary closing conditions.
“Shire has a long track record of delivering value for both shareholders and patients. Our growth profile has been accelerated under our new management team, who have successfully executed a focused strategy,” Susan Kilsby, chairman of Shire, commented in a statement. “We believe that this offer reflects the substantial value that we have already created for Shire’s shareholders and the strength of our future prospects. We believe that the combined group represents an exciting fit of two complementary businesses that will create a new market leader in specialty pharmaceuticals with a portfolio of fast-growing products, a promising pipeline and enhanced growth prospects.”
This is a happy ending for AbbVie, which has been aggressively courting Shire for months and saw four proposals get rejected. AbbVie made its fourth offer in late June a revised proposal of £22.44 in cash and 0.8568 shares of New AbbVie stock for each share of Shire stock. The proposal represented a premium of 23 percent on Shire’s June 19 share price. The proposal had an aggregate total of $51 billion. Shire announced on June 20 that it had rejected AbbVie’s third proposal, which was valued at approximately $46 billion.
“By combining AbbVie and Shire, we’re creating a unique, diversified biopharmaceutical company. The combined company would benefit from a best-in-class product development platform, a stronger pipeline and more enhanced R&D capabilities. The combination of AbbVie and Shire is attractive for shareholders of both companies, bringing the potential for strengthened sustainability of top-tier EPS growth, attractive free cash flow and enhanced cash returns to shareholders. The combination would provide us with enhanced access to cash that we can use to expand our portfolio and fund M&A to supplement organic growth,” Richard A. Gonzalez, chairman of the board and CEO of AbbVie, said in a press release.
Both the size of the previous offers and the industry footprints of Shire and AbbVie have had analysts keeping a close eye on the proceedings, and the general consensus is that this is a strong deal for both companies, AbbVie especially.
Joshua Owide, GlobalData’s director of Healthcare Industry Dynamics, noted that the combined company could see pro-forma revenues of $24.9 billion this year, and “GlobalData further forecasts a 6-percent compound annual growth rate for the combined entity between 2014 and 2019, with the new firm expected to generate total revenue of $33.4 billion by 2019.” The deal, Owide added, is “the sixth-largest merger and acquisition transaction in the history of the sector.”
“AbbVie has its own issues to contend with, notably its overexposure to the performance of its best-selling autoimmune disorder therapy Humira, which is faced with a sizeable threat in the form of biosimilars,” said Owide. “AbbVie’s dependency on Humira, combined with the decline of its rapidly maturing U.S. drug business, is cause for concern. The firm has deemed it necessary to reduce this dependency and reinforce long-term shareholder value through a merger with Shire. With this acquisition, AbbVie has taken a big step towards diversifying its portfolio and reducing its dependency on Humira and the risks associated with reliance on one asset.”
Giles Somers, an analyst at Datamonitor Healthcare, agreed that AbbVie needed to do something to offset its reliance on Humira in the light of biosimilar competition, and added that “Shire too has a disproportionate share of sales derived from ADHD treatment Vyvanse,” though it has patent protection for that drug until 2023.
“In terms of therapeutic positioning, Shire’s pipeline perfectly complements that of AbbVie. Although it currently focuses on immunology, inflammation and infectious disease, this deal will allow AbbVie to move into the central nervous system and rare genetic disorders markets, using its broad geographical coverage to make the most of Shire’s assets,” said Somers. “As with several other recent transactions, tax savings also represent a large incentive for this deal as AbbVie expects to lower its tax rate from 22 percent to 13 percent over subsequent years. It’s interesting to note that the inversion here likely only became possible as a result of AbbVie being spun-off from parent company Abbott Laboratories in 2012. The larger forerunner would have needed to merge with or acquire a significantly larger ex-U.S. company to gain the tax benefits.”