London - London-listed drug maker Shire succumbed yesterday to an increased £31 billion (R567bn) takeover offer from AbbVie, signalling the conclusion to a long courtship largely motivated by tax savings.
Shire said it was ready to recommend the deal, the latest in a list of mergers proposed by US firms seeking to cut their tax rates. It comes less than seven weeks after the collapse of Pfizer’s bid for AstraZeneca.
Chicago-based AbbVie, which wants to buy Shire to cut its tax bill and diversify its product line-up, increased its offer to £53.20 a share on Sunday, following a request from the Dublin-based group, which had rejected four previous bids.
Shares in Shire hit a record high of £50.50 by mid-morning on the London Stock Exchange but by 2pm they had slipped back to £49.44, still up 1.5 percent on the day and valuing the company at £29.1bn.
Shire said the new bid comprised £24.44 in cash and 0.896 new AbbVie shares for each Shire share and would result in Shire investors owning about a quarter of the combined entity.
“The proposed offer seems a fair price that represents good value for both companies’ shareholders,” Mick Cooper, an analyst at Edison Investment Research, said.
AbbVie is eager to buy Shire to reduce its US tax bill by moving its tax base to Britain – a tactic known as inversion – and to diversify its drug portfolio.
The US group gets nearly 60 percent of its revenue from rheumatoid arthritis drug Humira, the world’s top-selling medicine, which will lose its US patent protection in late 2016.
Analysts at Barclays estimated the move would provide $1.3bn (R14bn) in tax savings by 2020, reflecting lower UK corporate tax rates.
AbbVie has proposed creating a new US-listed holding company with a tax domicile in Britain, whose corporate tax rate is set to drop as low as 20 percent from 2015, well below the US headline rate of 35 percent plus local taxes.
The UK government has also introduced tax breaks designed to encourage research and development.
“We expect the majority of the tax savings to be realised within the first two years,” Barclays analysts said.
“Strategically, AbbVie acquires Shire’s quality growth assets in platforms including rare diseases, neuroscience and ophthalmology, easing investor concerns about over-reliance on Humira and offering future growth opportunities,” they said.
Analyst Alistair Campbell at banking group Berenberg said there were few other British pharmaceutical companies that would suit a tax inversion takeover.
“The company has to be of a certain size, because around 20 percent of the shareholders [after the] deal must be shareholders in the target company, so you can’t go for small companies,” he said. “GlaxoSmithKline is too big, AstraZeneca has had an approach from Pfizer and Shire has now gone.”
Smith & Nephew, Europe’s largest maker of artificial joints, has been seen as a possible target, with US-based Stryker forced to say it would not bid after reports linking it with a deal circulated in May.
Sweden’s Meda rejected an improved takeover offer from US generics firm Mylan in April, which could have helped reduce taxes.
The approach for Shire, which was founded in Britain in 1986, has been far less controversial than the move for AstraZeneca.
Headquartered in Dublin, it is managed from Boston, Massachusetts, and has most of its sales in the US, resulting in a relatively small business footprint in Britain.
Shire chief executive Flemming Ornskov had said he was happy for the company to be sold at the right price, but he had set out a detailed case as to why it was worth a lot more than AbbVie was originally offering. – Reuters