DealBook: AbbVie Clinches $54 Billion Deal for Shire in Huge 1nversion to Cut Taxes

Photo Shire shareholders are expected to own roughly 25 percent of the newly combined company.Credit Suzanne Plunkett/Reuters Related Links

Updated, 8:16 a.m. | The pharmaceutical giant AbbVie agreed on Friday to buy its European rival Shire for around $54 billion in the biggest takeover deal so far this year.

If completed, the union would create one of the 50 largest companies in the world. With a market value of more than $137 billion, the enlarged AbbVie would be worth more than the likes of Boeing, McDonald's and Cisco.

The takeover will allow AbbVie, based near Chicago, to reincorporate in Britain, allowing the United States company to reduce its overall tax bill. The company said Friday that it expected that the transaction would lower its effective tax rate to 13 percent by 2016 from 22.6 percent in 2013 last year.

The deal would be the largest-ever inversion: Abbie, a recent spinoff of Abbott Laboratories, would be reincorporated on the small island of Jersey, in the English Channel. Shire, based in Dublin, is already incorporated in Jersey. A wave of American companies — primarily in health care — have sought to do similar deals that would allow them to reincorporate in countries like Britain, Ireland or the Netherlands that have lower corporate rates than in the United States.

The acquisition of Shire comes as voices in Washington are being raised against allowing American companies to move their tax domicile overseas in such deals. On Tuesday, Treasury Secretary Jacob J. Lew sent letters to senior members of Congress, encouraging them to pass legislation halting inversions. His proposal would be retroactive — potentially thwarting AbbVie's ability to reincorporate in Britain — but Senator Orrin G. Hatch, the Utah Republican who is the ranking member of the Senate Finance Committee, has objected to any retroactive penalties.

Credit CNBC

The cash-and-stock offer values Shire's shares at roughly £53.19, or about $91.06, which is more than a 50 percent higher than the drug maker's closing share price in May before a prospective deal was first announced. Shire shareholders are expected to own roughly 25 percent of the newly combined company once the deal closes, according to a joint statement from AbbVie and Shire.

Shire's shares were up about 1.5 percent in trading in London.

The agreement follows a lengthy stand-off between AbbVie and Shire, with the American company making five offers to Shire since early May. On Friday, it said that it had evaluating Shire as an acquisition target since last autumn.

It's not only tax considerations that are driving the meger. AbbVie is keen on Shire's stable of products, which includes Adderall, used in the treatment of attention deficit disorder. One of AbbVie's  leading drugs,  Humira, which is used to treat arthritis, comes off patent protection in 2016, providing a motivation for AbbVie to find new sources of revenue. The enlarged company is likely to have annual sales of about $25 billion.

For AbbVie, the deal is a major milestone less than two years after being spun out of Abbott Laboratories. Splitting up Abbott was intended to make the former parent and AbbVie more nimble competitors. But a rush of consolidation in the pharmaceutical industry, and the pressure to strike inversion deals, drove AbbVie to find safety in scale once more.

Richard A. Gonzalez will continue to lead AbbVie, but Shire representatives will be involved as well. Flemming Ornskov, the Shire chief executive, will lead the integration for Shire and oversee a new rare diseases business unit in the new company. It is unusual for a target company's chief to remain employed by an acquirer after a deal

Two Shire directors, Susan Kilsby and Dominic Blakemore, will join the AbbVie board. And AbbVie said it would honor all employment agreements between Shire and its employees.

"We're creating a unique, diversified biopharmaceutical company,"  Mr. Gonzalez, said in a statement on Friday. "The combination would provide us with enhanced access to cash that we can use to expand our portfolio and fund M.&A. to supplement organic growth."

Under the terms of the deal, AbbVie has offered investors in Shire £24.44, or $41.82, and 0.89 in new AbbVie shares for each of their shares in the European pharmaceutical company.

New AbbVie shares will be listed on the New York Stock Exchange.

The company said it was committed to continuing an aggressive research and development program, despite a debate over the effectiveness of drug development by big pharmaceutical companies. Valeant, the Canadian company pursuing Botox maker Allergan, has said that most research and development money is wasted at big companies, and that it intends to slash the research budgets of companies it acquires.

AbbVie said it had agreed to pay Shire at least $500 million in a break-up fee if the deal is not completed, according to a company statement. The breakup fee is large, but not out of line with other recent deals. When Medtronic agreed to acquire Covidien for $43 billion in what was previously the largest announced inversion, it agreed to a breakup fee of $850 million.

AbbVie, which had sales of nearly $19 billion in 2013, has about 25,000 employees in more than 170 countries. Shire, with revenue of $4.9 billion last year, has about 5,000 employees in 30 countries.

 

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