AbbVie Nears $54 Billion Shire Deal
LONDON--U.S. drug maker AbbVie Inc. is close to clinching a deal to buy Dublin-based Shire PLC for more than GBP31
billion ($53.6 billion), in what would be one of the largest so-called inversion deals through which U.S. companies are
seeking a lower corporate tax burden.
After four days of renewed talks between the two drug makers, Shire said Monday it had received a revised offer from
AbbVie of GBP53.20 a share over the weekend. Shire said it would be willing to recommend the deal to its shareholders
subject to "satisfactory resolution of the other terms of the offer."
The two sides are negotiating a breakup fee for the deal, as well as discussing management positions and other
governance issues, according to a person familiar with the talks.
The latest proposal represents AbbVie's fifth attempt to take over Shire. At almost $54 billion, a completed
acquisition would be a contender for the year's biggest merger, alongside Valeant Pharmaceuticals International Inc.'s
hostile attempt to take over Botox maker Allergan Inc. for a similar amount. Shire's tentative agreement to recommend
AbbVie's new offer is good news for Valeant, as it likely removes Shire as a potential partner for Allergan.
If Shire agrees to a deal, North Chicago, Ill.-based AbbVie plans to base the new combined company in the U.K. to
benefit from its lower corporate tax rate. The move is part of a wave of U.S. health-care companies looking to take
advantage of European deals to lower their taxes.
Also on Monday, Mylan Inc. of Canonsburg, Pa., agreed to buy pharmaceutical assets from AbbVie's former parent, Abbott
Laboratories , in a $5.3 billion deal that will create a new entity organized in the Netherlands. Mylan's move came
after Sweden's Meda AB spurned several tax-inversion takeover approaches from Mylan.
Pfizer Inc. tried and failed to buy AstraZeneca PLC for around $120 billion to relocate in the U.K. in May.
In the biggest successful inversion deal so far this year, Ireland's Covidien PLC agreed to a $42.9 billion takeover
deal by Minneapolis-based medical-device company Medtronic Inc., the latest in a wave of Irish takeovers.
Tax considerations appear to be the primary driver in AbbVie's courtship of Shire. The companies have little overlap
in their respective businesses, limiting likely cost synergies. Shire's tax rate on its income, measured by non-U.S.
accounting standards, was 17% in the first quarter, though Irish corporate tax rates tend to be lower than those in the
U.K.AbbVie's was 22.3%, adjusted for asset amortization and certain other costs.
AbbVie says it wants to acquire Shire to diversify: It lacks a presence in Shire's twin specialties of drugs to treat
attention-deficit disorder and treatments for rare genetic diseases like Hunter's syndrome. AbbVie also argues its
greater global resources and scale could help boost Shire's sales and its larger pool of scientists and regulatory
experts could accelerate Shire's new-drug research and development.
But industry experts say the benefit of a larger sales force could be limited, since drugs for rare diseases are
prescribed through just a handful of specialist physicians. And the industry overall has been slimming down R&D
departments on the premise that innovation flourishes in smaller, biotech-style units.
"I think the main strategic rationale here is tax inversion," Shire Chief Executive Flemming Ornskov said of the
AbbVie approach in an interview last month. "I think that the overlap on the therapeutic areas is limited to
gastrointestinal diseases." Mr. Ornskov wasn't available for comment Monday.
The new AbbVie offer comprises GBP24.44 in cash and 0.8960 AbbVie share per Shire share. Shire shareholders would end
up owning around 25% of the new combined company--above the 20% threshold needed to pursue an inversion.
Shire's board had previously raised concerns about the execution risk of such a deal. On Sunday, U.K. Business
Secretary Vince Cable announced plans to strengthen Britain's takeover rules to make it harder for acquirers to renege
on promises made as part of a deal, adding that he had been influenced by Pfizer's recent takeover attempt for
AstraZeneca. However, a representative of Mr. Cable's office said Monday that the government has no specific concerns
about AbbVie's bid for Shire.
U.S. politicians are also talking about ways to tighten up the rules on tax inversions, including raising the bar for
ownership of a new combined company by the target company's shareholders to 50% from 20%.
Shire's board had previously rejected four takeover offers from AbbVie, the first valued at GBP46.26 a share in mid-
June. AbbVie's latest offer represents a 45% premium to Shire's closing share price the day before its first offer was
made. Shire's board had been under pressure from investors to keep negotiating with AbbVie.
AbbVie has until Friday under U.K. takeover rules to announce a firm offer for Shire or walk away. Shire said Monday
there could be no certainty that a firm offer would be made.
AbbVie, which was spun off from Abbott Laboratories in early 2013, makes the world's top-grossing drug, the
rheumatoid-arthritis treatment Humira, responsible for more than half of its sales. A Shire acquisition would help
diversify AbbVie's current focus on anti-inflammatory, HIV and cancer drugs and reduce its dependence on Humira before
its U.S. patent expires in 2016.
Shire's top-selling drug, Vyvanse, treats attention-deficit disorder. The continuing controversy over prescribing
amphetamine products like Vyvanse to children has put some potential buyers off in the past, industry experts say, but
thanks to recent acquisitions, Shire's sales are now shifting more to rare diseases.
Mr. Ornskov expects the company's focus to shift further toward rare diseases. He set out new targets last month to
raise annual sales to $10 billion by 2020, up from $4.9 billion in 2013, with drugs in Shire's development pipeline to
make up just under a third of that figure.
Analysts had expected that other drug makers, such as Allergan, Bristol-Myers Squibb Co. or France'sSanofi SA, might
put in a rival bid for Shire, attracted by its high-margin rare-disease franchise.
Shares in Shire were up 1.8% in afternoon trading Monday to GBP49.58, having traded as high as GBP50.50 earlier.
Write to Hester Plumridge at firstname.lastname@example.org
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