AbbVie-Shire deal in jeopardy, but not necessarily dead

Shire, which believed only a day ago that it would soon be bought out by AbbVie in a $54 billion deal prompted by tax advantages, is not going to just roll over and play dead now that its pursuer is getting cold feet. It insists the deal should go through.

"The board of Shire believes that AbbVie should proceed with the recommended offer on the agreed terms," the company said in a statement today.

The AbbVie ($ABBV) board said on Tuesday that it was reconsidering the deal in light of recent changes in tax provisions and is to meet Monday to discuss it. That doesn't mean the deal is automatically dead. The two could rewrite the terms to make it more palatable to AbbVie.

There are other benefits besides the tax cut for AbbVie in the takeover. AbbVie currently gets the largest piece of its revenues, $10.7 billion last year, from a single drug, arthritis fighter Humira. While it has been the best-selling drug in the world, it goes off patent in 2016. With Shire ($SHPG), it gets a portfolio of successful specialty drugs and an expanded pipeline to help it past the patent cliff Humira will soon fall off.

And it is unclear what the tax code changes might do to the deal. They will change the use of so-called hopscotch loans, a maneuver that AbbVie was expected to use to help pay for the deal, but some analysts think that the tax changes might not be that bad. Shire said today that it has yet to see an analysis from AbbVie of what the changes in the tax provision would do.

Ana Nicholls, healthcare analyst at The Economist Intelligence Unit, told investors as much today: "This is only a rethink, in short, and AbbVie's board may instead recommend a modification of the deal--which could mean trying to renegotiate the price or change other terms of the deal. It is notable that Shire chief executive, who resisted AbbVie's initial offers so strongly, is now proclaiming his enthusiasm for the deal."

If sweet persuasion can't convince AbbVie to stay stay committed, Shire does have a bit of a stick with which to prod its suitor. AbbVie would have to fork over a $1.6 billion breakup fee if its decides to bail out on the deal, $1.635 billion to be exact, and Shire pointed that out in its statement today.

AbbVie CEO Richard Gonzalez

It could be that the board just wants to make sure that it publicly goes through with all of the expected due diligence, reconsidering a very large deal in light of new facts. Just a couple of weeks ago, after there were rumors the deal could be in jeopardy, AbbVie CEO Richard Gonzalez went around AbbVie and Shire to make assurances that AbbVie intended to go forward. Today, Shire hopes to hear some more of those assurances.

- here's the AbbVie statement
- here's the Shire statement
- read the New York Times story (sub. req.)

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