Shares of Shire (SHPG) plunged 30.3% after AbbVie (ABBV) announced that its board has decided to reconsider the acquisition offer for the former.
AbbVie informed Shire that its board will meet on Oct 20 to decide whether to withdraw or modify its proposal in light of the impact of the U.S. Treasury Notice dated Sep 22, 2014.
We remind investors that AbbVie had agreed to acquire Shire for approximately £53.19 per Shire share (£24.44 in cash and 0.8960 ordinary shares of the merged company for each Shire share).The acquisition would also provide Shire shareholders a 25% stake in the merged entity.
We note that AbbVie will be obligated to make a break-fee payment equal to 3% of the total deal value (approximately $1.6 billion) if the company goes back on its recommendation and subsequently terminates the deal. Meanwhile, if AbbVie’s shareholders vote against the takeover, the company will pay Shire at least $500 million (up to 1% of the deal value) to compensate for costs, losses and expenses related to the deal.
Presently, Shire holds a strong position in the Attention deficit and hyperactivity disorder (ADHD) market driven by key drugs like Vyvanse, and Intuniv – Vyvanse being the key growth driver.
We note that the deal would have reduced AbbVie’s effective tax rate to approximately 13% by 2016 from the current effective tax rate in the early twenties. The acquisition would have also boosted AbbVie’s portfolio and reduced its dependence on Humira.
We expect investor focus on further updates regarding the offer.
AbbVie carries a Zacks Rank #3 (Hold) while Shire holds a Zacks Rank #1 (Strong Buy). Currently, Lannett Inc. (LCI) and Medivation Inc. (MDVN) are two other well-ranked stocks in the health care sector holding the same Zacks Rank as Shire.
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