London-listed drugmaker Shire Plc succumbed to an increased 31 billion pounds ($53 billion) takeover offer from Abbvie Inc (NYSE:ABBN) on Monday, signaling the conclusion to a long-running courtship largely motivated by tax.
Shire said it was ready to recommend the deal, the latest in a list of mergers proposed by U.S. firms seeking to cut their tax rates, and which comes less than seven weeks after the collapse of Pfizer Inc's (NYSE:PFE) $118 billion bid for AstraZeneca Plc, also motivated in part by tax factors.
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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 pounds per share on Sunday, following a request from the Dublin-based group which had rejected four previous bids.
Citing people familiar with the matter, Reuters had reported on Saturday that Shire, a maker of drugs for rare diseases, had asked AbbVie to sweeten its offer to near 53 pounds per share in order for it to recommend the deal.
Shire said the new bid comprised 24.44 pounds in cash and 0.8960 new AbbVie shares for each Shire share and would result in Shire investors owning around 25 percent of the combined entity.
"The proposed offer seems a fair price that represents good value for both companies’ shareholders," said Mick Cooper, an analyst at Edison Investment Research. Shares in Shire, founded in 1986, hit a record high of 50.45 pounds in mid-morning trading.
AbbVie is eager to buy Shire both to reduce its U.S. tax bill by moving its tax base to Britain - a tactic known as inversion - and to diversify its drug portfolio.
The U.S. group gets nearly 60 percent of its revenue from rheumatoid arthritis drug Humira, the world's top-selling medicine, which loses U.S. patent protection in late 2016.
Analysts at Barclays estimated the move would provide an estimated $1.3 billion tax savings by 2020, reflecting lower UK corporate tax rates.
AbbVie has proposed creating a new U.S.-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 U.S. 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 realized 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."
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 post deal must be shareholders in the target company, so you can't go for small companies," he said. "Glaxo <GSK.L> is too big, Astra has had an approach from Pfizer and Shire has now gone."
Smith & Nephew Plc <SN.L>, Europe's largest maker of artificial joints, has been seen as a possible contender, with U.S.-based Stryker Corp <SYK.N> forced to say it would not bid for the group after reports linking it with a deal circulated in May.
Sweden's Meda AB <MEDAa.ST> rejected an improved takeover offer from U.S. generics firm Mylan Inc <MYL.O> in April, which could have helped reduce taxes.
The approach for Shire, founded in Britain, 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 United States, 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 like AstraZeneca in its defense against Pfizer, he had set out a detailed case as to why it was worth a lot more than AbbVie was originally offering.