UPDATE 4-Shire ready to bow to AbbVie's increased $53 bln offer

Mon Jul 14, 2014 11:52am EDT

* AbbVie raises bid to 53.20 pounds/share from 51.15

* Deal values Shire at 31 bln pounds

* Bid comprises 24.44 stg cash and 0.8960 new AbbVie shares

* Shire shares hit record high, trading at 50.00 (Adds analyst comment; updates share moves)

By Kate Holton

LONDON, July 14 (Reuters) - Shire Plc, which sells drugs for rare diseases, succumbed to an increased 31 billion pounds ($53 billion) takeover offer from Abbvie Inc on Monday, signaling the conclusion to a lengthy courtship largely motivated by tax benefits.

Dublin-based Shire said it would recommend the deal, the latest in a list of mergers proposed by U.S. companies seeking to cut tax rates. It comes less than seven weeks after the collapse of Pfizer Inc's $118 billion bid for AstraZeneca Plc, also motivated in part by tax factors.

Chicago-based AbbVie, which also wants to diversify its product lineup, increased the offer to 53.20 pounds per share on Sunday, following a request from Shire after it had rejected four previous bids.

Citing people familiar with the matter, Reuters had reported on Saturday that Shire had asked AbbVie to sweeten its offer to near 53 pounds per share in order for it to recommend the deal.

Shire said the new bid comprised 24.44 pounds in cash and 0.8960 new AbbVie share for each Shire share, giving Shire investors about 25 percent ownership of the combined entity.

"This deal makes a lot of sense for AbbVie as it would lower its tax rate from 22 percent to 13 percent, reduce dependence on Humira, broaden the (drug) pipeline, and provide some opportunities for operational synergies," BMO Capital Markets analyst Alex Arfaei said in a research note.

AbbVie 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.

BMO is estimating the combination would increase AbbVie's earnings per share by 9 percent in 2015 and 17 percent in 2016.

AbbVie shares were down 1.4 percent at $54.19 on the New York Stock Exchange, while Shire was up 1.6 percent in London after earlier hitting an all-time high of 50.45 pounds.

AbbVie would lower its corporate tax rate by moving its tax base to Britain, a tactic known as inversion. Analysts at Barclays estimated the move would provide an estimated $1.3 billion in tax savings by 2020.

"Strategically, AbbVie acquires Shire's quality growth assets in platforms including rare diseases, neuroscience and ophthalmology, easing investor concerns about overreliance on Humira and offering future growth opportunities," Barclays said.

FEW INVERSION TARGETS

Analyst Alistair Campbell at banking group Berenberg said there were few other British drugmakers that would suit a tax inversion takeover because about 20 percent of shareholders post-deal must be shareholders in the target company.

"You can't go for small companies," he said. "Glaxo is too big, Astra has had an approach from Pfizer and Shire has now gone."

Smith & Nephew Plc, Europe's largest maker of artificial joints, has been seen as a possible target. U.S.-based Stryker Corp has said it would not bid for the company after reports linking it with a deal circulated in May.

Sweden's Meda AB rejected an improved takeover offer from U.S. generic drugmaker Mylan Inc in April, which could have helped reduce taxes.

The approach for Shire has been far less controversial than the move for AstraZeneca. While headquartered in Dublin, Shire is managed from Boston and has most of its sales in the United States, resulting in a relatively small business footprint in Britain.

Shire Chief Executive Flemming Ornskov had said he was happy for the company to be sold at the right price. ($1 = 0.5877 British Pounds) (Additional reporting by Bill Berkrot in New York; Editing by Louise Heavens, David Holmes and Jonathan Oatis)

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