AbbVie Seen Having to Raise Offer for Shire to $51 Billion

Jun 25, 2014 12:25 pm ET

(Updates with closing share price in eighth paragraph.)

June 25 (Bloomberg) -- AbbVie Inc., which was rejected on three different takeover offers for Shire Plc, may have to raise its bid to about 30 billion pounds ($51 billion) to persuade the drugmaker’s board to sell.

A proposal of about 51 pounds a share would do the trick, according to the average estimate of five analysts compiled by Bloomberg News. AbbVie’s latest cash-and-stock offer valued Shire at about 27.3 billion pounds.

While Shire’s Chief Executive Officer Flemming Ornskov has said AbbVie’s offer undervalues the company, he also has said he isn’t fundamentally opposed to a buyout if it adequately compensates Shire’s shareholders. In any case, it’s up to the board to decide, he said.

“It’s all about a price,” said Savvas Neophytou, an analyst at Panmure Gordon. “I personally think this deal will get done.”

Shire said today it won a U.S. court ruling blocking generic versions of its best-selling product, a decision that may force AbbVie to raise its price to buy the drugmaker, according to Barclays Plc. Unless the generic companies win an appeal, they will be blocked from introducing a copy of Vyvanse, a treatment for attention deficit hyperactivity disorder with $1.2 billion in yearly sales, until the patents expire in 2023, Dublin-based Shire said in a statement today.

Stronger Case

The ruling could force a takeover bid to rise above 55 pounds a share, Barclays analyst Dani Saurymper said in a note to investors today.

“With Vyvanse 30 percent of Shire’s earnings, a stronger case for 2023 expiry reduces uncertainty for a potential buyer and adds weight to Shire’s assertion of its fundamental valuation,” Saurymper said in the note.

Shire, which is domiciled in Dublin for tax purposes and has management offices in Basingstoke, England, said June 20 it rejected North Chicago, Illinois-based AbbVie’s unsolicited approaches, including the latest one that valued Shire at 46.11 pounds a share. Shire’s share price has climbed 20 percent since then, reaching 45.17 pounds at the close of trading in London today, and giving the company a market value of 26.6 billion pounds.

Weighing Offer

AbbVie is considering whether to raise its bid again, according to a person with knowledge of the matter. The U.S. company is eager to stress what it sees as the strategic benefits of the proposed purchase, and not just its tax implications, said the person, who asked not to be named because preparations are private. Adelle Infante, a spokeswoman for AbbVie, declined to comment on a possible higher bid.

The U.S. company began a campaign to woo Shire shareholders today, saying its latest offer represents compelling value to Shire shareholders. AbbVie will brief shareholders in a conference call today on its rationale for the acquisition.

Ornskov, 56, on June 23 made his case to investors for why Shire has a bright future as an independent company. Sales will double to $10 billion by 2020, spurred by treatments for rare diseases and by lifitegrast, the experimental treatment for dry eye disease that Shire gained by buying SARcode Bioscience Inc., Ornskov said.

“I am not entrenched,” he said in an interview in London the same day. “I would imagine that if you have a premium company, you would expect -- without commenting on any expectation of price -- you would also expect a premium.”

A takeover would give AbbVie, which is dependent on the rheumatoid arthritis drug Humira for sales growth, access to Shire’s growing stable of treatments for rare diseases and may allow it to redomicile in a country with a lower tax rate than the U.S.

“The critical thing from AbbVie’s perspective is, how high can they go while still making the deal accretive?” said Peter Welford, an analyst at Jefferies LLC in London. The company could go up to 65 pounds a share while maintaining double-digit earnings per share accretion, according to Jeffrey Holford, Welford’s colleague at Jefferies in New York.

“We expect AbbVie will raise until it reaches the level of price sensitivity where the deal gets done,” Holford said in a note today.

--With assistance from Matthew Campbell and Makiko Kitamura in London and Albertina Torsoli in Geneva.