Tags: AbbVie | tax | domicile | hostile

AbbVie CEO Won't Rule Out Hostile Bid in Tax-Slashing Shire Deal

Wednesday, 25 June 2014 10:46 AM

AbbVie Inc. said its $46.5 billion bid for Shire Plc offers “compelling” value for Shire shareholders and that it won’t rule out going hostile in its drive to acquire the drugmaker.

Joining the companies will accelerate sales growth for both while cutting AbbVie’s tax rate by almost 10 percentage points with a tax inversion, the company said in a statement today. Shire’s products are “complementary” to AbbVie’s, and the U.S.-based company can improve their global marketing, AbbVie Chief Executive Officer Richard Gonzalez said.

“We’re not willing to restrict our legal options,” Gonzalez said during a call with analysts today. “We do intend to engage Shire’s shareholders.”

The combined company would be managed from Chicago and would have a tax domicile in the U.K., AbbVie said in its statement. With a deal, AbbVie’s tax rate would drop to 13 percent from about 22 percent last year, the company said. To make a firm offer, AbbVie would want unanimous support from Shire’s board, according to the U.S. company’s statement.

“There’s an opportunity here that we believe strategically makes a lot of sense, financially is attractive, and it’s something we believe will build on our already strong strategy,” Gonzalez said.

In today’s statement, AbbVie also addressed Shire’s criticism that its plan to move out of the U.S. for tax purposes is risky, saying it “believes the proposed transaction is highly executable.”

Takeover Rules

Under U.K. takeover rules, AbbVie has until July 18 to make a firm offer or walk away. If it walks away, it’s precluded in most cases from making another bid for as long as six months. Stephanie Fagan, a Shire spokeswoman, said she couldn’t immediately comment on AbbVie’s statement.

Shire rose 2.1 percent to 44.95 pounds at 12:30 p.m. in London trading.

“Tax inversion is a pretty explicit motivation,” said Ronny Gal, a New-York based analyst at Sanford C. Bernstein & Co. in a telephone interview. “If enough of these transactions take place, Congress would act. It’s unlikely this will happen before the election. However, if it looks like jobs will begin to be lost in the U.S., you could see more action.”

“Notice that AbbVie said operational headquarters stay in Chicago, so they’re saying jobs won’t be lost but they don’t want to pay U.S. taxes,” he said.

Rejected Bid

The cash-and-stock bid rejected by the Shire board valued the company at about 46.26 pounds a share as of May 29, before AbbVie made the proposal, AbbVie said. Shire calculates the original value differently, putting it at about 46.11 pounds.

Because AbbVie’s stock has declined, the bid is now worth about 45.64 pounds, according to AbbVie’s statement.

A deal would give AbbVie, which depends on the arthritis therapy Humira for about 60 percent of its sales, access to Shire’s array of rare disease treatments and drugs for attention deficit hyperactivity disorder.

At the same time, AbbVie would boost share buybacks if the deal went through, Chief Financial Officer William Chase said on the call. The tax gain allows a “significantly increased return of capital while maintaining a growing dividend,” and may help with future acquisitions, he said.

An agreement promises to add “materially” to AbbVie’s earnings per share in the first year after it’s completed, the company said in its statement.

Flemming Ornskov, Shire’s chief executive officer since May last year, has argued to keep his company independent, projecting that product sales will double to $10 billion by 2020 as Shire expands in drugs for eye maladies and other rare diseases.

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AbbVie Inc. said its $46.5 billion bid for Shire Plc offers "compelling" value for Shire shareholders and that it won't rule out going hostile in its drive to acquire the drugmaker.
AbbVie, tax, domicile, hostile
Wednesday, 25 June 2014 10:46 AM
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