AbbVie presses case for Shire deal and urges talks

LONDON Wed Jun 25, 2014 12:05pm EDT

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LONDON (Reuters) - U.S. drugmaker AbbVie (ABBV.N) said on Wednesday it wanted to move rapidly to clinch a takeover of Shire (SHP.L) as it set out the strategic rationale for buying the London-listed company, which has spurned its $46 billion offer.

AbbVie called for talks and said it was willing to move "quickly and cooperatively" to get a deal, arguing it would create more value from Shire’s assets than the hyperactivity and rare diseases specialist could do on its own.

One person familiar with the matter said AbbVie, which stands to cut its tax bill through the deal, could consider bidding more but first wanted to explain its case to Shire shareholders and hear their views on valuation.

Chief Executive Richard Gonzalez and AbbVie's senior management plan to meet with U.S. investors in New York on Thursday and Friday, with further meetings planned for London next week, sources close to the situation said.

Questioned by analysts, Gonzalez declined to rule out a hostile bid but said his preference was to engage with Shire's management to better understand the upbeat drug sales forecasts set out by the company on Monday.

Gonzalez said he was "even more interested" in Shire after hearing its plans to more than double sales by 2020 - but he questioned some of the assumptions behind the bullish figures.

Buying Shire for $46 billion would boost adjusted earnings per share "materially" in the first year following completion, growing to above $1 per share by 2020, AbbVie added - a comment some analysts said suggested it had plenty of room to increase its bid.

Although the U.S. group insisted its proposal offered "compelling" immediate value, with significant future upside, many investors believe it will have to pay more than 50 pounds a share to get a deal done, rather than the 46.26 pounds implied in its last cash-and-shares offer.

Shire said AbbVie's announcement provided no material new information and reiterated its belief that the offer fundamentally undervalued the company.

HIGHER OFFER?

Barclays and Jefferies analysts said the U.S. company could make a Shire deal pay at a price of up to 55 pounds and 65 pounds a share, respectively, while Bank of America Merrill Lynch put the theoretical takeout range at 50-62 pounds.

Buying Shire would allow AbbVie to join a growing number of companies to move their tax base out of the United States and would give it an effective tax rate of around 13 percent by 2016, against 22 percent last year. The enlarged company would be managed from Chicago, listed in New York and incorporated in the British island of Jersey.

It is the second attempt by a U.S. pharmaceutical company to buy a London-listed rival, after Pfizer's (PFE.N) $118 billion pursuit of AstraZeneca (AZN.L) failed last month.

Despite criticism from Shire that the nature of the deal would create risks for shareholders, AbbVie said it had thoroughly assessed the tax and structuring aspects and believed the transaction was "highly executable".

AbbVie's pitch comes as Shire won new ammunition for arguing its worth following a U.S. court decision backing patent claims on its top-selling hyperactivity drug Vyvanse.

AbbVie is eager to buy Shire, both to reduce taxation by redomiciling in Britain - a tactic known as inversion - and to diversify its drug portfolio. The U.S. company currently gets nearly 60 percent of its revenue from rheumatoid arthritis drug Humira, the world's top-selling medicine, which loses U.S. patent protection in late 2016.

But Gonzalez needs to sell AbbVie's marketing clout and financial strength to Shire shareholders, since they would end up owning shares in the enlarged group. AbbVie has already raised its profit forecast for 2014, citing a strong business performance.

AbbVie was created as a spin-off from Abbott Laboratories (ABT.N) and listed in January last year, since when Gonzalez said it had delivered a 64 percent total return to shareholders.

SHIRE SHARES GAIN

Shares in Shire, which surged on Friday after news of AbbVie's takeover offer emerged, hit a new all-time high of 46.63 pounds before slipping back to close 2.6 percent higher at 45.17 pounds, while the Stoxx Europe 600 drugs sector index .SXDP lost 0.8 percent.

Shire's chief executive Flemming Ornskov said on Monday he was happy for the company to be sold at the right price, if the board recommended it, as he set out a detailed case as to why AbbVie's offer fell short.

Under British takeover rules AbbVie has until July 18 to announce a firm offer for Shire or walk away. The U.S. company said it reserved the right to introduce other forms of consideration and vary the cash-and-share mix of the bid.

(Additional reporting by Olivia Oran in New York; Editing by Tom Pfeiffer and Greg Mahlich)

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