The Burrill Report


After months of courtship, Shire Pharmaceuticals has accepted AbbVie’s fifth takeover offer for $53.7 billion in cash and stock. The deal is the biggest M&A transaction so far this year and the largest tax inversion deal to date.

Under the terms of the deal, announced just before a U.K. takeover rules deadline, Shire shareholders will get $41.85 (£53.2) in cash and 0.8960 shares of new AbbVie per Shire share. The deal represents a 53 percent premium over Shire’s market value before AbbVie made its first public offer for Shire in May. Shire shareholders will own about 25 percent of the combined company, with AbbVie holding the rest.

The acquisition creates a new AbbVie with a market capitalization of about $137 billion,
prescription revenues of $23.7 billion, and puts it in the ranks of the top ten global pharmaceutical companies.

“Today’s strategic action will fortify our position of strength and set up AbbVie for sustainable success for many years to come,” said AbbVie CEO Richard Gonzalez on a call with analysts after the deal was announced. “The combination will result in strengthened growth platforms with leadership positions in immunology, rare diseases, neuroscience, metabolic diseases, and HCV, as well as emerging new segments including oncology and ophthalmology.”

AbbVie gains Shire’s rare disease platform and psychiatric pipeline, including top selling ADHD drug Vyvanse, which had sales of $1.2 billion in 2013. AbbVie’s top selling arthritis drug Humira had sales of $10.7 billion in 2013.

It is also the largest tax inversion deal to date, allowing AbbVie, which was spun off from Abbott Laboratories at the end of 2012, to reduce its corporate tax rate to 13 percent in 2016 from 22.6 percent in 2013. Chicago-based AbbVie will move the corporate headquarters of the combined company to Jersey, a small island in the English Channel for tax purposes. The new company will continue to trade on the New York Stock Exchange.

“This structure provides AbbVie with flexible access to its global cash flows,” Gonzalez said.

AbbVie joins the rush of U.S. life sciences companies shifting their tax domiciles overseas in order to reduce their tax bills, with total deal value of such deals topping $124.5 billion this year. Besides AbbVie’s potential $53.7 billion deal for Shire, life sciences tax inversion deals include Actavis’ $25 billion takeover of Forest Laboratories, Medtronic’s $42.9 billion acquisition of Covidien, and most recently, Salix’s $2.9 billion deal for Cosmo Technologies.
The rush of companies seeking to do inversion deals has prompted some alarm in Washington. Over the past week, Treasury Secretary Jacob Lew sent letters to senior members of Congress urging them to enact legislation that would stop these types of deals.

Gonzalez told analysts that the tax advantages were a benefit but not the primary driver of the deal. “This is a transaction that we believe has excellent strategic fit and has compelling financial impact well beyond the tax impact,” Gonzalez said. “We would not be doing it if it was just for the tax impact.”

He said that the debate [in Congress] “would be more appropriately shifted towards tax reform and making companies more competitive in the global economy that we operate in.”

“Companies like ours need access to our global cash flows to be able to make investments all around the world, but to specifically be able to make investments in the United States,” Gonzalez said. “Today we are at a disadvantage versus many of our foreign competitors and, in my personal opinion, that is the important debate that we should be having around inversion and all aspects of the U.S. tax code.”

The transaction is expected to close by the end of 2014 pending shareholder approval.

July 21, 2014
http://www.burrillreport.com/article-abbvie_and_shire_agree_to_54b_union.html