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Shire and AbbVie: five proposals and a wedding?

 Sweetened offer of £31bn from US suitor was enough to lure Shire into talks, so what's left for the sides to wrangle over?

After a two-month long dance between both sides and a couple of dinner dates, Shire has announced that it is finally in “detailed” talks with AbbVie after the US suitor improved its offer to £53.20 a share.

Shire and AbbVie: five proposals and a wedding?
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It is understood that there are still questions from AbbVie’s side on the validity of Shire’s pipeline and the US suitor will be poring over the Dublin-based group’s bullish forecast estimates to double its drug revenues to $10bn by 2020.

On the other hand, Shire is said to be seeking comfort on the execution risks of an inversion – the move which will allow AbbVie to dramatically cut its tax bill to just 13pc. One option could be a hefty reverse break fee that would see Shire pocket a considerable sum if the deal falls apart on this point. However, the UK’s Takeover Panel has not been keen on such tactics since changing the rules in 2012. Another option for lawyers to fight over is a significant clause that also excuses both sides if politicians intervene on tax policy before the deal closes.

Both sides have been pulling all-nighters over the weekend to get to this morning’s announcement. But if extra time is needed to dot the i's and cross the t's on all of the terms, the Takeover Panel is likely to be willing to grant an extension if Shire asked for it.

For Shire shareholders the question is should they support this offer? For short termists the answer is a quick as a flash yes.

The rare disease company has been a perennial takeover target and many hedge funds have built up stakes during previous false dawns and are gasping to cash out. This is also a considerable 42pc premium to Shire’s share price before news of AbbVie’s approach was made public.

For long-term shareholders there must be a weighing of whether to believe Shire will achieve more independently than combined. AbbVie has stuffed its sweetened offer with more of its own paper, which conveniently, is at an all time high. Should Shire shareholders press for more cash? AbbVie has left wriggle room to change the mix of its offer, so long as it does not stump up less than £46.22.

However, there should be caution on pushing the bidder for too much. There are limited overlaps in the two companies’ scientific portfolios and the two group's research and development are already lean, meaning the ability to drive cost synergies is limited.

AbbVie has already talked up its offer from £46.26-a-share. A further hike could result in accusations that AbbVie is overpaying which would weigh on its own share price and thereby reduce the value of the stock portion on offer.

There is a scarcity value to Shire as the pool of potential target companies for US companies keen to invert into shrinks. But it is not the holy grail.

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