Pfizer’s Failure Gives AbbVie Lessons in $46.5 Billion Shire Bid

Jun 26, 2014 7:00 pm ET

June 27 (Bloomberg) -- AbbVie Inc., in its pursuit of drugmaker Shire Plc, has hired some of the same advisers that Pfizer Inc. worked with in its failed push for AstraZeneca Plc. They’re trying to learn from the experience.

Richard Gonzalez, AbbVie’s chief executive officer, yesterday made clear that a hostile bid is an option for his company, a move Pfizer ruled out. AbbVie’s effort also differs in that it’s appealing directly to Shire shareholders early, offering what it calls a significant premium to win their support to pressure its board or prepare the ground for a hostile offer, according to people familiar with the matter.

This year’s boom in health-care takeovers is giving companies and their banks, lawyers, and public-relations firms plenty of real-life experience to draw upon. AbbVie is being advised on its $46.5 billion bid by JPMorgan Chase & Co. as well as PR firm Brunswick Group, both of which also worked with Pfizer on AstraZeneca.

“They don’t want to back themselves into a corner,” Navid Malik, an analyst at Cenkos Securities Plc in London, said of AbbVie.

Gonzalez’s team is trying to keep debate focused on the strategic logic of a deal, rather than on using Shire’s Irish legal domicile to escape U.S. taxes -- a topic that came to dominate the Pfizer-AstraZeneca transaction, said one of the people, who asked not to be identified because talks are private.

However, they’re also stressing that tax benefits could enable bigger payouts to investors in the future. The pitch: that a combination would enrich Shire shareholders beyond what the company could achieve alone.

Shire, for its part, has said the bid undervalues the company, and that it has strong prospects on its own.

A spokeswoman for AbbVie and a spokesman for Brunswick didn’t immediately return calls seeking comment. A JPMorgan spokeswoman declined to comment.

North Chicago, Illinois-based AbbVie heads into possible negotiations with advantages Pfizer lacked. Unlike AstraZeneca, Shire doesn’t have a large workforce or substantial research base in the U.K. that politicians will fight to keep under local control, as they did in AstraZeneca’s case.

No History

And AbbVie, spun off from Abbott Laboratories last year, has no history of past acquisitions to defend. Pfizer’s record of presiding over large-scale layoffs after buying companies including Wyeth and Pharmacia Corp. helped rally British politicians and unions to AstraZeneca’s side.

Shire, domiciled in Dublin for tax purposes and with management offices in Basingstoke, England, has rejected three takeover offers from AbbVie. The companies are at odds over how to benchmark Shire’s shares, with AbbVie arguing Shire’s share price has been inflated since the AstraZeneca deal highlighted the attractiveness of U.K. and Irish-domiciled health-care companies.

Citigroup Inc., Deutsche Bank AG, Evercore Partners Inc., Morgan Stanley and Goldman Sachs Group Inc. are advising Shire.

Final Offer

AbbVie CEO Gonzalez’s statement yesterday that he would keep a hostile bid on the table contrasted with Pfizer’s approach.

Pfizer on May 18 said its latest $117 billion proposal for AstraZeneca was final and that it wouldn’t try to woo shareholders directly. Under U.K. takeover rules, deeming an offer final makes it nearly impossible for it to be further increased. That’s another pitfall AbbVie is keen to avoid, two of the people said.

Those pledges marked the end -- at least for now -- of what would have been the industry’s biggest-ever acquisition, raising questions about Pfizer’s tactics.

Parliament’s Reaction

Separately, AbbVie is trying to head off concerns that set off a heated public debate over AstraZeneca, one of the people familiar with the situation said.

Members of Parliament in the U.K. expressed reservations over Pfizer’s history of large transactions followed by firings and the shutdown of research facilities.

In response, Pfizer promised to locate 20 percent of its global research workforce in Britain. That in turn fuelled concern from public officials in the U.S. and Sweden, where AstraZeneca also has significant operations, and exacerbated animosity between the two companies.

Shire employs fewer than 500 people in the U.K. and only about 100 in Ireland. CEO Flemming Ornskov and Phil Vickers, Shire’s research head, work in the U.S., and other top managers are joining them there.

In a message to its employees yesterday, AbbVie said no jobs would be lost in the Chicago area in a Shire deal, and the combined company would be managed from there. AbbVie is also arguing that a deal would strengthen Shire’s research and development capacity and give it global scale.

Political Scrutiny

Buying Shire would give AbbVie a growing stable of treatments for rare diseases. The U.S. company is dependent on the rheumatoid arthritis drug Humira for about 60 percent of sales.

Gonzalez yesterday stressed the strategic advantages he believes a transaction would bring to both companies in areas such as rare diseases, neurosciences and ophthalmology. He also pointed to the common ground between AbbVie and Shire.

“Both strategically and culturally, there is great alignment between our companies,” he said. They “are both specialty-focused biopharmaceutical companies, pursuing similar strategies, targeting diseases of high unmet medical need.”

While AbbVie has said the proposed deal would cut its tax rate by almost 10 percentage points, in its 39-page slide deck presentation to Shire investors the word “tax” surfaces only on page 20.

--With assistance from Aaron Kirchfeld in London.