Abbvie to buy Allergan in $63bn deal

September 2019 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

September 2019 Issue

Drug manufacturer Abbvie Inc is to acquire Irish rival Allergan Plc for around $63bn in a cash and stock transaction.

The deal, which is subject to shareholder and regulatory approval, will create a pharmaceutical giant with a significantly enhanced long-term research and development funding capacity, which will enable the combined company to focus on, and invest in, innovative science and advance the development of its product pipeline.

Abbvie will pay $188.24 per share for Allergan, a 45 percent premium over Allergan’s closing price on the day before the deal was announced. However, the $63bn price tag is less than half of what Allergan nearly sold for three years ago. In 2016, Pfizer almost acquired the company for around $150-$160bn but the deal was scuppered by changes affecting so-called ‘inversion’ deals.

Allergan shareholders will receive 0.8660 AbbVie shares and $120.30 in cash for each share held, for a total consideration of $188.24 per Allergan share. Including debt, the deal values Allergan at $83bn. Upon completion of the deal, AbbVie shareholders will hold around 83 percent of AbbVie on a fully diluted basis, with Allergan shareholders owning the remaining 17 percent.

For Abbvie, the acquisition of Allergan will give the company access to the lucrative wrinkle treatment Botox and time to seek new growth before its blockbuster arthritis treatment Humira loses patent protection in its most important market, the US, in 2023. In 2018, Humira generated sales of $20bn, around 57 percent of the company’s total revenue, however cheaper alternatives in Europe and the impending expiry of its patent protection have caused Abbvie to act. If Abbvie were to include Allergan’s most recent revenue results, the merged company’s dependence on Humira would drop to 39 percent of total sales.

The deal is expected to complete early in 2020, and AbbVie expects it to generate $2bn in annual pre-tax synergies and cost savings by year three, coming from a reduction of overlapping research and development resources, efficiencies in selling, general and administrative expenses and the elimination of manufacturing and supply chain redundancies. With a view to potential antitrust concerns, the firms have already agreed to spin off products in small areas of overlap to satisfy the Federal Trade Commission, according to Abbvie’s vice chairman, Laura Schumacher.

“This is a transformational transaction for both companies and achieves unique and complementary strategic objectives,” said Richard A. Gonzalez, chairman and chief executive of AbbVie. “The combination of AbbVie and Allergan increases our ability to continue to deliver on our mission to patients and shareholders. With our enhanced growth platform to fuel industry-leading growth, this strategy allows us to diversify Abbvie’s business while sustaining our focus on innovative science and the advancement of our industry-leading pipeline well into the future.”

“This acquisition creates compelling value for Allergan’s stakeholders, including our customers, patients and shareholders,” said Brent Saunders, chairman and chief executive of Allergan. “With 2019 annual combined revenue of approximately $48 billion, scale in more than 175 countries, an industry-leading R&D pipeline and robust cash flows, our combined company will have the opportunity to make even bigger contributions to global health than either can alone. Our fast-growing therapeutic areas, including our world class medical aesthetics, eye care, CNS and gastrointestinal businesses, will enhance Abbvie’s strong growth platform and create substantial value for shareholders of both companies.

Upon completion of the deal, AbbVie will continue to be incorporated in Delaware as AbbVie Inc. and have its principal executive offices in North Chicago. The company will continue to be led by Mr Gonzalez as chairman and chief executive. Two members of Allergan’s board, including Mr Saunders, will join Abbvie’s board.

The Abbvie-Allergan deal is the latest merger in the increasingly active pharmaceuticals space. According to Factset, prior to the announcement of the deal, there had been more than 40 mergers in the pharma industry this year, with a combined value of $168bn.

Richard Summerfield