AbbVie finally agrees Shire deal

September 2014 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

US drugs manufacturer AbbVie finally won approval for its $54bn acquisition of Irish based pharmaceutical company Shire Plc on 18 July. Both companies expect the transaction to be completed in the fourth quarter of 2014 subject to the approval of both firm’s shareholders and the usual antitrust authorities. The newly merged company will have a market capitalisation of around $137bn and will employ approximately 30,000 people worldwide.

AbbVie’s sweetened offer of $53.6bn will see Shire’s shareholders take a 25 percent stake in the newly merged company once the transaction has been completed. Shire had resisted four earlier hostile bids from the American firm until AbbVie sufficiently raised its price from the initial offer of $51bn. The finalised deal will see Shire’s stakeholders receive £52.48 per share in a deal comprised of £24.44 in cash and 0.8960 new AbbVie shares. The agreed sale price represents a premium of around 53 percent to Shire’s share price on 2 May, the last business day before AbbVie’s initial offer for the company.

The acquisition of Shire by the American firm is the latest in a recent spate of deals which has seen a US firm take advantage of a loophole that allows them to avoid higher corporate taxes in their home market by reincorporating elsewhere. Earlier in July, Philadelphia based pharmaceutical giant Mylan Laboratories announced that it was acquiring the generic drug manufacturing business of Dutch firm Abbott Laboratories for $5.3bn. The deal for Abbott will allow Mylan to reincorporate in the Netherlands. American drug manufacturer Pfizer Inc’s unsuccessful £69bn attempt to purchase British pharmaceutical firm AstraZeneca in May was also believed to have been partly motivated by a desire for Pfizer to reincorporate in the UK. Once the Shire acquisition has been completed, the so-called ‘inversion’ will see the new AbbVie incorporated in Jersey in the UK, where Shire is currently incorporated. AbbVie will retain its base in Chicago, Illinois. As a result of the inversion, AbbVie will lower its tax rate from 22 percent to 13 percent by 2016. Although the speed and frequency at which US firms have exploited the inversion loophole has led some commentators to appeal for Congressional action, the chances of further inversion deals in the future seems high.

Commenting on the merger in a joint statement between the two companies, the chairman and chief executive officer of AbbVie, Richard Gonzalez, said “By combining AbbVie and Shire, we’re creating a unique, diversified biopharmaceutical company. The combined company would benefit from a best-in-class product development platform, a stronger pipeline and more enhanced R&D capabilities. The combination of AbbVie and Shire is attractive for shareholders of both companies, bringing the potential for strengthened sustainability of top-tier EPS growth, attractive free cash flow and enhanced cash returns to shareholders. The combination would provide us with enhanced access to cash that we can use to expand our portfolio and fund M&A to supplement organic growth.”

The deal will be particularly lucrative for Shire’s executives, many of whom will receive multimillion dollar payouts. Under the terms of the deal AbbVie has agreed to incentivise 31 senior members of Shire’s staff to stay with the reformed company. The incentive package offered amounts to around £19.2m. Flemming Ornskov, Shire’s chief executive, will receive a retention payment of £5.8m or 150 percent of his annual compensation package. Mr Ornskov will continue as the firm’s chief executive and will direct Shire’s side of the integration process. He will also oversee the creation of a new rare disease division. The remaining £22.9m will be divided up among the 30 other Shire staff members deemed to be critical to the future success of the division. Those employees will be entitled to a one-off cash payment worth 100-200 percent of their annual salary and bonus on 30 June 2015.

Susan Kilsby, chairman of Shire, said: “Shire has a long track record of delivering value for both shareholders and patients. Our growth profile has been accelerated under our new management team who have successfully executed a focused strategy. We believe that this offer reflects the substantial value that we have already created for Shire’s shareholders and the strength of our future prospects. We believe that the combined group represents an exciting fit of two complementary businesses that will create a new market leader in specialty pharmaceuticals with a portfolio of fast growing products, a promising pipeline and enhanced growth prospects.”

Richard Summerfield