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AbbVie's raised proposal for Shire gets board backing AbbVie's raised proposal for Shire gets board backing
(about 17 hours later)
A £31bn takeover of the London-listed drug company Shire by the US firm AbbVie came a step closer on Monday, when Shire's board announced they would back the deal. A blockbuster £31bn takeover of the London-listed drug company Shire by US rival AbbVie came a step closer on Monday, after Shire's board announced it would back the deal despite concerns over its controversial tax structure.
AbbVie has been attempting to take over the rare-diseases specialist Shire since May and its latest proposal – the fifth it has made – values Shire at £53.20 a share. It would give Shire shareholders 25% of the combined company. AbbVie has indicated that shifting its tax domicile from the US to the UK is a key part of the logic behind the proposed takeover. The drive to escape a punitive US tax regime, echoing proposals by American peer Pfizer during its failed £69bn attempt to acquire Britain's AstraZeneca earlier this year, had alarmed the Shire board when it rebuffed an AbbVie approach last month.
However, those concerns appeared to have abated on Monday when Shire said it would recommend a proposal – the fifth that AbbVie has made – that valued the rare-diseases specialist at £53.20 a share.
Shire said: "The board of Shire has indicated to AbbVie that it would be willing to recommend an offer at the level of the revised proposal to Shire shareholders subject to satisfactory resolution of the other terms of the offer."Shire said: "The board of Shire has indicated to AbbVie that it would be willing to recommend an offer at the level of the revised proposal to Shire shareholders subject to satisfactory resolution of the other terms of the offer."
The board said it was in "detailed discussions" with AbbVie but added there was no certainty that a formal offer would be made. Shire, best known for drugs for attention deficit hyperactivity disorder (ADHD) and rare diseases, is an attractive target for AbbVie, which is looking to diversify its product range as well as reduce its tax bill. AbbVie's Humira rheumatoid arthritis drug accounts for 60% of sales but loses patent protection at the end of 2016.
Shire, best known for drugs for attention deficit hyperactivity disorder (ADHD) and rare diseases, is an attractive target for AbbVie, which is looking to diversify its product range. The lure of tax savings is also a strong draw for the US drugsmaker, as it was for Pfizer, which made a failed bid for AstraZeneca. If the takeover goes ahead, Illinois-based AbbVie would move its legal address to the UK, cutting its corporate tax rate from 22% to 13%. Shire was founded in the UK, but is today managed in Boston, headquartered in Dublin and generates most of its sales in the United States. If the takeover goes ahead, Illinois-based AbbVie would move its legal address to the UK, cutting its effective corporate tax rate from 22% to 13% by 2016. Analysts at Barclays estimated the move would provide an estimated $1.3bn (£760m) in tax savings by 2020.
Shire's board has rejected four previous proposals from AbbVie, concluding that the offers fundamentally undervalued the company. But shareholders have been putting pressure on the board to go to the negotiating table, arguing that £51 is a good enough number. Richard Gonzalez, chief executive and chairman of AbbVie, was reported last week to have said he had spoken to key Shire investors and they were "generally supportive" of his company's £30bn offer. In a statement last month, the Shire board said AbbVie's tax proposals were risky, amid mounting political opposition in the US to so-called corporate inversions, where companies move their head office abroad to make tax savings. The board said it "had concerns regarding the execution risks associated with the proposed [tax] inversion structure, as AbbVie would redomicile in the UK for tax purposes".
Shire's opposition has weakened amid pressure from shareholders, who have called for talks. One analyst said Shire was one of the few outstanding targets for US firms seeking an inversion deal in the wake of the failed Pfizer pursuit.
Alistair Campbell, at banking group Berenberg, said there were few other British drugmakers that would suit a tax inversion takeover because shareholders in the target company must own at least 20% of the merged group after the deal is completed. Under the terms of the AbbVie proposal, Shire shareholders would own 25% of the combined firms. "You can't go for small companies," he said. "Glaxo is too big, Astra has had an approach from Pfizer and Shire has now gone."
Hull-based Smith & Nephew, Europe's largest maker of artificial joints, has also been seen as a possible target. But US-based rival Stryker has said it would not bid for the company after reports linking it with a deal circulated in May. Elsewhere, Sweden's Meda rejected an improved takeover offer from US generic drugmaker Mylan in April, which could have helped reduce taxes.
A takeover of Shire is unlikely to incite the political and public furore that erupted over Pfizer's courtship of AstraZeneca. Shire was founded in the UK, but is managed in Boston, headquartered in Dublin and generates most of its sales in the US. It employs fewer than 500 people in the UK – out of a 5,000-strong workforce – and has a small research and development staff in Britain.
AstraZeneca, has 2,000 R&D employees in the UK alone and Pfizer's pledge to secure R&D jobs in the wake of a takeover was not enough to quell political opposition to its proposals. The AstraZeneca row prompted ministers to draw up proposals that would see foreign companies hit with penalties if they broke promises over jobs and investment once they had taken over a UK business.
Cable said: "There will be cases where there are vital national interests, in this case large-scale investment of R&D. The question is how you protect it. What the government did then [during Pfizer 's proposed takeover] was to engage in negotiations to seek assurances. Where we now have to strengthen that is to make sure that with any commitments made there is no wriggle room."
Shares in Shire closed up 0.7% at £49.03.