Shire drops on doubt over AbbVie takeover
All may not be lost for Shire shareholders.
The drugmaker dropped 5.1 per cent this week on worries that US moves to curb tax inversions would derail its takeover bid from AbbVie. A key attraction of the deal is that AbbVie could redomicile to avoid US repatriation taxes on its global cash flows.
A meeting with AbbVie’s chief financial officer Bill Chase provided reassurance that the takeover will complete, Credit Suisse told clients. “While he cannot break down the value that AbbVie would obtain from an inversion specifically, the strategic importance of integrating Shire into a more diversified, speciality care NewCo holds more importance than some on the Street currently appreciate,” it said.
Buying Shire will give AbbVie greater flexibility to deploy cash trapped outside the US, which is more important to management than using controversial tax-lowering methods such as intercompany debt and interest expense deductions, said Credit Suisse.
Currently, AbbVie has a 13 per cent pro forma tax rate and pays 35 per cent to repatriate international cash. So even without redomiciling, AbbVie could still make savings worth about £9 per Shire share just by getting access to the UK group’s cash flow, 70 per cent of which comes from the US, Barclays estimated. “Put another way, for every dollar of expenditure that AbbVie can avoid paying with repatriated cash by utilising Shire’s US cash flows it saves 54 cents,” the broker told clients.
Merger cost savings can deliver a further £3.70 per Shire share so even if inversion is impossible, Abbvie’s offer, worth £52.42 on Friday’s prices, looked only marginally too high, Barclays said. Shire ended flat at £46.19, rallying from a session low of £45.00.