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Shire shareholders are pressing the listed Anglo-Irish pharmaceuticals company to enter takeover talks with AbbVie, The Daily Telegraph reported. The report quoted one top 10 Shire shareholder who said the time is now right to begin talks. Another top 20 shareholder said Shire should “engage” with listed Chicago, Illinois-based AbbVvie, the item added.

AbbVie yesterday, 8 July submitted an increased offer valuing Shire at GBP 51.15 (EUR 64.36) per share, or GBP 30.1bn. The offer is 11% higher than AbbVie’s previous offer, the item noted. Shire has rebuffed three previous approaches from AbbVie and has refused to enter talks.

Shareholders emphasized that although they believe Shire should enter talks with AbbVie, the US-based company would need to improve its offer further, the article added. The item noted that, unlike with previous offers from AbbVie, the Shire board did not immediately dismiss the latest offer.

Shire issued a statement indicating that it would hold a board meeting to review AbbVie’s latest offer.

The article went on to quote a Berenberg Bank analyst who thought Shire investors were looking for an offer nearer to GBP 55 per share, and doubted whether Shire would enter talks based on AbbVie’s latest offer.

A Panmure Gordon analyst cited by the report said the revised bid was aimed at putting pressure on the Shire board to enter talks in order to secure a recommendation. The analyst believed that Shire’s board would recommend an offer at a price higher than GBP 51.15, but no more than GBP 55.

It is understood that some shareholders are disappointed that AbbVie increased the proportion of shares to cash in its offer, the article added.

A report in The Times noted that AbbVie encouraged investors to consider the revised bid, and said it wants to quickly enter talks with Shire.

The newspaper cited a Cenkos analyst who said AbbVie had put itself at a tactical disadvantage by addressing shareholders directly. The analyst went on to say that Shire’s target of doubling its revenues by 2020 is achievable, although aggressive, and that the growth target would strengthen its defence against the AbbVie offer. The analyst added that AbbVie may need to launch a hostile bid, and that the US group would need to increase its offer.

The Financial Times’ Lex column noted that Shire’s share price fell slightly to around GBP 45.50 following news of AbbVie’s revised bid. The article commented that the market view would appear to be that the current offer will not suffice and that AbbVie would be reluctant to offer more.

The Lex column hypothesized that if AbbVie increased its offer by 10%, to GBP 25 in cash plus 0.93 AbbVie shares per Shire share – worth slightly more than GBP 56 – the enlarged group would, if the bid was accepted, would have net debt of approximately USD 31bn (EUR 22.81bn).

Based on US forecasts for 2015, the merged group would have earnings before interest, tax, depreciation and amortization (EBITDA) of USD 11.6bn. A successful bid at about GBP 56 would increase the ratio of the merged group’s net debt to ebitda to 2.7, thereby threatening the investment grade rating on its debt, which AbbVie is keen to maintain, according to the report.

The Lex column went on to note estimates by analysts at Barclays that the proposed deal would yield savings of about USD 300m, or about 10% of Shire’s operating expenses. Those projected savings would help to minimize the debt ratio, the article added. The report concluded by arguing that AbbVie might not increase its offer by much.

A report in the main section of the Financial Times noted that AbbVie chief executive Richard Gonzalez would not rule out increasing the company’s offer, or the prospect of launching a hostile offer if the Shire board refuses to enter talks. Gonzalez also said he believes that there is widespread support among Shire shareholders for a takeover, following meetings with investors in New York and London.

The Daily Telegraph's market report section said investors were concerned that AbbVie has yet to make a firm bid, and that AbbVie had announced the increase to its offer without informing Shire's board first.

Shire's share price closed 121p down at 4530p in London yesterday, valuing the company at GBP 26.69bn.

Source Daily Telegraph, The Times (London), Financial Times