NEW YORK (TheStreet) -- Nothing gets investors riled up like mergers and acquisitions. A great deal can present a company that has tons of cash with instant access to growth, allowing it to conquer new markets that would have otherwise take years to achieve.
(ABBV - Get Report) $51.5 billion offer (upped from $46.5 billion) for drug maker Shire
(SHPG - Get Report) has been rebuffed on multiple occasions, investors should not get discouraged.
AbbVie, which saw an almost 9% jump in its stock price when the rumors of the deal first emerged two weeks ago, has given back almost all of those gains. With Thursday's close of $55.79, shares are still up almost 6% year to date.
>>Allergan CEO David Pyott Hunting Acquisitions to Fend Off Valeant
>>14 Insanely Important Biotech/Drug Trading Catalysts for the Rest of 2014
These deals take time. Medtronic's
(MDT) $43 billion deal
was rumored for almost a year before both companies realized they needed each other. The most recent example is General Electric's
dance with Alstom
Negotiating tactics aside, what I think is most important to remember are the accretive benefits for the acquiring companies. In the case of AbbVie, there are plenty, which should boost the stock towards the $70 level in the next 12 months.
According to Mark Percell, analyst at Barclays
, a deal for Shire could yield close to 20% in accretive earnings for AbbVie in the next six years --and that's not even factoring AbbVie's already strong drug business being anchored by its blockbuster arthritis drug Humira.
Humira accounted for close to 60% of AbbVie's total
revenue in 2013. AbbVie's management understands that it can't live on Humira indefinitely. This is where Shire comes in.
Shire would make AbbVie immediately more diversified. I believe Shire's ability to unlock incremental value to be the main reason why AbbVie recently upped its offer by 10%.
Check Out Our Best Services for Investors
Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts