April 29, 2014 / 12:20 AM / 4 years ago

Exclusive: Allergan eyes new takeover bid for Shire - sources

LONDON/NEW YORK (Reuters) - Allergan Inc (AGN.N), facing an unsolicited bid from Valeant Pharmaceuticals International Inc (VRTX.O), is preparing to approach Shire Plc (SHP.L) about a potential takeover, even though the Irish drugmaker rebuffed a previous overture, people familiar with the matter said on Monday.

A bid by Allergan for Shire, which has a market value of $32 billion, would underscore how keen the U.S. dermatology drugmaker is to stay independent.

Valeant teamed up with activist investor Bill Ackman earlier this month to make an unsolicited $47 billion offer for Allergan. Valeant has expanded through a series of acquisitions over the past few years. But Allergan has been reluctant to sell to it in part because of Valeant’s reputation for cutting costs and spending little on research and development.

Allergan had held talks in recent months with Shire about a potential takeover, but those did not pan out, Reuters reported last week. The sources said Allergan is still interested in a deal with Shire and is planning a fresh approach, with the Valeant bid now also in the background.

Allergan could come back for a bid as soon as the next few days, one person added. The plan has yet to be finalized and could change, cautioned the sources, who asked not to be named because the matter is not public. It is not clear if Shire would be open to entering into merger discussions.

A representative of Allergan declined to comment, while Shire could not be immediately reached for comment. Valeant and Ackman’s hedge fund Pershing Square declined to comment.

Allergan’s shares closed down 1.3 percent on Monday on the New York Stock Exchange. Shire’s shares closed up 2.4 percent in London before the news of Allergan’s renewed interest.

A combination of Allergan and Shire would create a pharmaceutical giant with a combined market value of nearly $72 billion and annual sales of more than $11 billion.

Analysts have suggested one way for the Botox maker to defend against the unsolicited bid would be to acquire foreign drugmakers such as Shire, Jazz Pharmaceuticals Plc (JAZZ.O) or Alkermes Plc (ALKS.O).

A combination with Shire would help Allergan gain its top selling ADHD drug Vyvanse. It would also gain drugs for rare diseases like Elaprase for Hunter syndrome and Replagal for Fabry disease.

Pharmaceutical companies are interested in developing or buying orphan drugs which affect a small patient population because there are fewer hurdles to regulatory approval, have lower marketing costs and can command high prices.

Still, the Valeant bid could also complicate attempts by Allergan to find a white knight or buy someone else. As part of their strategy, Ackman bought a 9.7 percent stake in Allergan, becoming its largest shareholder.

    A transaction would add to a frenzy of deal-making currently going on in the healthcare sector, as the industry restructures amid healthcare spending cuts and competition from cheap generics.

    Deals totaling more than $153 billion have been struck so far this year, the highest year-to-date level since Thomson Reuters began tracking data. Pharmaceutical deals have accounted for 71 percent of overall healthcare deals.

    Buying Shire, which is based in Dublin, would also play to an increasingly popular trend that is driving M&A in healthcare and some other sectors these days: It could help lower Allergan’s tax rate.

    In a process known as inversion, U.S. drugmakers seek to relocate their headquarters to other countries with lower tax rates. These companies are eying potential targets that are based in Ireland in particular because of a low 12.5 percent corporate tax rate, compared to 35 percent in the United States.

    Bankers say the tax benefits of inversion are driving several other deals in healthcare and beyond. On Monday, for example, Pfizer Inc (PFE.N) said it had approached Britain’s AstraZeneca Plc (AZN.L) (AZN.N) to reignite a potential $100 billion takeover, in what would be the biggest foreign acquisition of a British company and one of the largest pharmaceutical deals. <ID: nL6N0NK194>

    That deal, if it were to happen, would also come with tax advantages. Pfizer could redomicile to Britain and enjoy lower tax rates, thanks to attractive incentives to companies that manufacture and hold patents in the country.

    Generic drugmaker Mylan Inc (MYL.O) is also looking at acquisition targets that are based outside of the United States because of competitive pressures from rivals with a less burdensome tax structure, and it has made an unsuccessful bid for Swedish drugmaker Meda MEDAa.ST.

    Reporting by Anjuli Davies and Sophie Sassard in London, Additional reporting by Olivia Oran and Soyoung Kim in New York; Editing by Cynthia Osterman

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