Shire PLC (ADR) (NASDAQ:SHPG) (LON:SHP) and AbbVie Inc (NYSE:ABBV) are close to signing a deal in which AbbVie would pay over $53.62 billion (£31 billion) or £53.20 per share to acquire Shire. If the deal closes it would be one of the biggest inversion deals ever, according to The Wall Street Journal. U.S. companies seek inversion deals for the goal of lowering their corporate tax bills.
AbbVie and Shire reopened negotiations four days ago. Shire said if there is a “satisfactory resolution” to the offer’s other terms, it would recommend that shareholders approve. Today’s revised offer is AbbVie’s fifth to buy Shire. Under the terms of the deal, AbbVie would move the headquarters of the combined company to the U.K. in order to take advantage of its lower tax rate. The deal includes £24.44 in cash and .896 shares of the combined company per Shire share.
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Shire’s board members previously expressed concerns that a deal between the two companies bring an execution risk. Over the weekend, U.K. officials said they will make the nation’s takeover rules stronger so that acquirers wouldn’t be able to go back on promises they make as part of the terms of any deals. Lawmakers have not expressed any specific concerns about AbbVie’s goal of buying Shire.
Why AbbVie wants Shire
Tax benefits appear to be the main reason AbbVie wants to buy Shire, as the two companies have very little in common. With so little in common, the two companies would not see much benefit from cost synergies if they merge. During the first quarter, Shire had a 17% tax rate based on accounting standards from outside the U.S. AbbVie’s rax rate was 22.3% after being adjusted for some costs and asset amortization.
AbbVie said it wants to buy Shire so that it can diversify its product offerings. Shire offers drugs to treat attention-deficit disorder and rare genetic diseases. In addition, AbbVie said it can help increase Shire’s sales and speed up the drug maker’s research and development because it has more resources than Shire does.
Experts in the pharmaceutical industry say that any benefit from increasing the size of the companies’ sale force could be limited because only a few specialists prescribe drugs for the rare diseases Shire’s drugs treat.
AbbVie’s offer good for Valeant Pharmaceuticals
The amount AbbVie is offering for Shire is similar to the deal Valeant Pharmaceuticals Intl Inc (NYSE:VRX) offered for Allergan, Inc. (NYSE:AGN). If both deals go through, they would be candidates for being the largest merger this year. If Shire does end up recommending that shareholders take the offer from AbbVie, it would be good news for Valeant, as there’s been speculation that Allergan would pursue a deal with Shire to fend against the potential hostile takeover by Valeant.