Shire Rejects AbbVie's Offer, Shares Up - Analyst Blog

Shares of Shire plc SHPG soared 16.3% after the company rejected an acquisition offer from AbbVie ABBV.

Shire announced that AbbVie offered to acquire the former for £20.44 in cash and 0.7988 AbbVie shares per Shire share held. The proposal was made on May 30, 2014. AbbVie's proposal represented a value of £46.11 per Shire share (comprising 44% cash and 56% AbbVie shares). 

The acquisition proposal also included a new listed holding company in the U.S. post acquisition with a UK tax domicile.

We remind investors that this was the third offer by AbbVie which was rejected by Shire.

Shire stated that the offer undervalues the company and its prospects as a leading company in rare diseases and specialty markets. The company also had reservations about the proposed inversion structure, as AbbVie would redomicile in the UK for tax purposes.

Shire believes that it can double its 2013 annual product sales to $10 billion by 2020 on a standalone basis and the acquisition proposal will deny the shareholders the full benefits of the company's growth strategy .

We note that Shire repositioned its business in 2013 undertaking a realignment program with strategic focus on rare diseases and greater operational discipline. Shire is well placed in the attention deficit and hyperactivity disorder ADHD market driven by key drug Vyvanse. Shire's recent acquisition of ViroPharma is expected to boost the bottom line by 7% in 2014.

On the other hand, AbbVie came into existence on Jan 1, 2013, after Abbott Laboratories ABT divested its pharmaceutical division. AbbVie, a biopharmaceutical company, focuses on the development and marketing of treatments for complex and serious ailments.

We expect investor focus to remain on further updates on the acquisition proposal.

Both Shire and AbbVie currently carry a Zacks Rank #3 (Hold). A better-ranked stock in the broader healthcare sector is Allergan AGN, with a Zacks Rank #1 (Strong Buy).