NEW YORK (TheStreet) --Orchestrated by many of the deal wizards who led Pfizer's (PFE - Get Report) bidding for AstraZeneca (AZN - Get Report), AbbVie (ABBV - Get Report) has gained verbal confirmation from Shire PLC (SHPG - Get Report) to move forward with the largest non-U.S. drug merger of the year.
After five sequential bids, AbbVie's $53.7 billion offer for the Dublin-based company was approved late Monday. Led by Chief Executive Rick Gonzalez, the Chicago-based drugmaker will take the reins as long as it proves the deal logistics aren't just fancy words.
— Swingman24 (@Swingman24) Jul. 14 at 01:51 PM
Offering a 50.5% premium to Shire's market price before takeover speculation erupted four weeks ago, the deal is now only a 12% premium to Shire's closing price on Tuesday. AbbVie proposes to pay $44.71 in cash per share and swap each of the remaining Shire shares with 0.896 of an AbbVie share.
With the premium in place, it is hard to believe the company isn't overpaying for the freedom to move its tax domicile, but there are a few less explicit factors adding to the deal as well. An analyst from British banking group Berenberg commented, "The company has to be of a certain size, because around 20% of the shareholders post-deal must be shareholders in the target company." The requirement ruled out quite a few of the options AbbVie could have executed on, smaller companies that cost much less, making Shire an even more lucrative target.
On the value front, according to an analyst from Bank of America Merrill Lynch, pending completion the deal will create $38 dollars per share in additional value to a combined company, which suggests AbbVie will be keeping upwards of 20% of that deal value to itself, discounting the purchase price significantly, and staying a lot of the complaining regarding the hefty premium.
The lessons taken from Pfizer extended further than just the deal team, AbbVie offered a 5% larger premium to Shire than Pfizer was willing to for AstraZenica, and also inserted "soft bids" to assure takeover discussion could be timeless. The latter may have been even more important, considering Pfizer's final bid deadlines expired on May 18 without any likely deal on the horizon. Indeed, the contrasting success and failure of AbbVie and Pfizer will be an important case for future deal talk, assuring open-ended discussions may supercede hard deadlines.
At the time of publication the author had no position in any of the stocks mentioned.
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