The end of the road for Shire as an independent pharmaceutical company

It’s the end of the road for FTSE 100 listed Shire Pharmaceuticals as an independent company with U.S. drug maker AbbVie’s £32 billion takeover being agreed today. Unlike Pfizer’s approach to buy Astra Zeneca for similar reasons of tax inversion the Shire board came to the table and came to an acceptable deal with their US acquirer. The combined group will move AbbVie’s tax domicile from the United to the UK with its lower corporation tax rates. There is much speculation as to whether Pfizer will come back to the table in August but with Shire now gone as an independent it leaves just Astra Zeneca and GSK in the FTSE 100 as independent British pharmaceutical groups.

Under the terms of the deal, Shire shareholders will receive £24.44 in cash and 0.8960 AbbVie share per Shire share. The combined offer represents a 53% premium to Shire’s share price on May 2, which was the last trading day before AbbVie’s initial proposal. After the transaction, Shire shareholders will hold about 25% of the new, merged company.

Shire shares are currently trading at £48.95, up an incredible 117% in the last year.

The company was founded by Harry Stratford, Dr James Murray, Dennis Stephens, Peter Moriarty, and Geoff Hall in 1986 and was first listed on the London Stock Exchange in 1996. Shire’s initial products were calcium supplements (Calcichew-D3) for patients seeking to treat or prevent osteoporosis. Since then it had shown significant growth boosted by a string of productive acquisitions growing its scope to be a specialist pharmaceutical operation with major drugs in areas such as Attention Deficit Disorder.

AbbVie said that “The Transaction will create a well-positioned and focused specialty biopharmaceutical company, with sustainable leadership positions within areas of unmet need, including immunology, rare diseases, neuroscience, metabolic diseases and liver disease (HCV) and multiple emerging oncology programs”.

The big question is whether the US government will move to quickly end these tax inversion deals which puts foreign earned profits out of reach of the tax man. Many in Washington will be looking at these deals with a great deal of scrutiny but getting through the necessary legislation quickly to prevent further tax inversions in a timely manner will be the challenge.

A nervous time for employees in Shire with the inevitable job cuts but the senior management are set to benefit from their significant share holdings as their options vest on the takeover.

Contrarian Investor UK

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