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AbbVie raises offer for Shire to $51.5 billion in fourth bid

AbbVie Inc. made a fourth offer to buy Shire Plc, raising the price to about 30.1 billion pounds ($51.5 billion) in an effort to force negotiations. Shire said its board would meet to discuss the bid.

AbbVie (NYSE: ABBV) increased its offer by about 11 percent to 51.15 pounds a share in cash and stock after meeting with Shire’s top shareholders, the drugmaker said Tuesday. Shire (Nasdaq: SHPG) said in a statement that it wasn’t given AbbVie’s latest proposal ahead of time, and the company advised investors to take no action.

AbbVie CEO Richard Gonzalez talked with Shire’s top 20 shareholders before the new bid, and said in his opinion, they back the deal.

“I met with the majority of Shire shareholders and they understand the strategic rationale,” he said by telephone Tuesday. “I believe they are generally supportive of the transaction and this offer is responsive of their feedback.”

Gonzalez wouldn’t say if the offer is AbbVie’s last, and said AbbVie isn’t in talks with Shire’s board.

“We have asked for, on multiple occasions, engagement,” he said. “We are not engaged with Shire currently.”

AbbVie has made three previous bids of as much as 27.3 billion pounds, a price Shire’s board unanimously rejected, saying it undervalued the comany’s prospects for increasing sales of its rare-disease medicines.

'Cash component'

AbbVie can sweeten the deal by increasing the cash-to-stock ratio, which currently gives Shire shareholders 22 pounds per share in cash, said Navid Malik, a London-based analyst at Cenkos Securities Plc.

“The market’s quite disappointed with the cash component,” Malik said by telephone. “A lot of the shareholders in Shire are invested in Shire because it’s a high-growth story. They probably want to be compensated for holding paper which, for a combined pharmaceutical company, may not grow as fast.”

Buying Shire would allow North Chicago, Ill.-based AbbVie to move its legal address to the U.K., and take advantage of lower corporate tax rate there to drop its tax rate to 13 percent from about 22 percent. Shire’s array of rare disease treatments and drugs for attention deficit hyperactivity disorder would also give AbbVie a wider array of products beyond the rheumatoid arthritis injection Humira, which accounts for more than half of sales.

Shire fell 192.2 percent to 45.01 pounds at 3:54 p.m. in London, and AbbVie shares fell 2.98 percent to $55.69. AbbVie put the value of its previous bid at 46.26 pounds a share.

Eye drug

Flemming Ornskov, Shire’s CEO since May 2013, has argued for keeping the company independent, projecting that product sales will double to $10 billion by 2020 as Shire expands in drugs for eye maladies and rare diseases.

Ornskov has also touted his resume, including bringing the blockbuster eye drug Lucentis to Novartis AG, and cost cutting and improved profit in his first year as Shire’s CEO, hoping to persuade investors to leave Shire’s management with him.

Shareholders should let Shire’s board know their view of the new offer, and the company hasn’t ruled out making a hostile bid, Gonzalez said in today’s interview.

Under U.K. rules, AbbVie has until July 18 to make a firm offer or walk away. If AbbVie walks away, it’s precluded in most cases from making another bid for as long as six months. Gonzalez said AbbVie can make that deadline.

“Certainly there’s enough time to have engagement and do limited confirmatory diligence,” Gonzalez said. “We’re willing to engage quickly to have those discussions.”

'Nice price'

The value of the new bid is in line with the average analyst estimate compiled by Bloomberg last month. Still, investors say AbbVie may need to raise its offer again.

“Clearly for now the price reaction shows that the market does not believe that this last offer is going to be sufficient to seal the deal,” Jean-François Comte, managing partner at Paris hedge fund Lutetia Capital, who manages about $153 million, including Shire stock, said in a telephone interview. “I can’t really disagree with that.”

AbbVie may need to pay 55 pounds a share to get Shire’s board to agree to sell, said Ori Hershkovitz, a partner at Sphera Funds Management in Tel Aviv. The fund owns Shire stock.

“It’s a nice price,” Hershkovitz said by telephone. “I think they could squeeze out a little more.”

AbbVie’s bid for Shire is the latest attempted deal in a period of increased acquisition activity in the drug and medical device industry. Not including the AbbVie offer, there were deals proposed or completed worth about $260 billion in the second quarter, according to data compiled by Bloomberg, five times more than any quarter since at least 2009.

Another bidder?

“The question that everybody has in mind at this point is if somebody else is going to show up,” Comte said. “Are they waiting for AbbVie to do the first part of the job to test Shire’s reaction, and then only show up once there’s a bit more visibility?”

Companies including Bristol-Myers Squibb Co. (NYSE: BMY) and Allergan Inc. (NYSE: AGN) may also be interested in buying Shire, analysts have said.

Shire’s tax domicile is in Dublin, its main executive office is in Basingstoke, England, and the CEO, Ornskov, works in the U.S., in Lexington, Mass.

Drugs for ADHD, including Vyvanse and Adderall XR, accounted for about 39 percent of Shire’s revenue last year.

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