Given that we were just recently on the subject of M&As and even potentially hostile takeovers (e.g Valeant-Allergan or Pfizer-Astra Zeneca), it seemed timely to comment on another very large transaction being attempted by an American company to gain control of a UK entity. In another increasingly pubic approach, we are back once again to the video game-type activity of "invasion and inversion"!
In this case it is the recent move by US-based AbbVie to take over UK stalwart Shire, undoubtedly once again due to favorable tax synergies achieved by any such acquisition. The interesting aspect of this situation, though, is that nowhere near the same level of ballyhoo is being generated in the UK by this attempted takeover as was observed in the recent Pfizer play - and the key question is why?
When Pfizer was attempting to swallow up AZ, it caused national outrage at a level that roped in the fury of various MPs and escalated all the way up to James Cameron, the UK's Prime Minister. This led to a grilling of Pfizer CEO Ian Read that made one think he was actually Gordon Gekko, corporate raider extraordinaire, and not the legitimate head honcho of a money-printing big pharma company. I am not even sure that Tony "Wayward" Hayward (ex-BP CEO during the Gulf Of Mexico crisis in 2010) got treated with such paranoid suspicion, even after his now legendarily devastating PR soundbite from Hell's darker chambers - "There's no one that wants this over more than I do. I'd like my life back."
That short line was truly a nail in the vampire's coffin, if not an outright stake through its heart, as the rich black blood pumped vigorously all over the real coffin that the Gulf Coast had by then become. But I digress, and even though Ian Read was treated with a similar degree of vitriol, all he was trying to do was enact a little bit of corporate raiding, with no devastation to wildlife populations or pollution of seafronts or unemployment creation for thousands of people - right?
Well, right, but maybe wrong on that last point! The major difference between AZ and Shire is that, perhaps ironically, Shire is viewed as inherently less "British"" than AZ. While Shire has been in the UK since around the mid-eighties, it conducts most of its business in the US and has a tax berth in Ireland, where corporate tax rates are some of the lowest available on the planet, at around 12 percent currently. When you factor in that the UK is still around double that and that the rate in the US is around a whopping 35 percent, you can see where the value in such deals is truly derived, at least in part.
Of course, Shire does have a fantastic pipeline and its speciality in rare diseases is an aspect that AbbVie has a keen interest in assimilating, and thus it is overall an incredibly attractive acquisition target for AbbVie - even at the whopping price of $46B. The lack of furore in the UK over this deal probably goes back to that last point above - jobs. While the takeover of Shire and its US-based operations and workforce would impact employment very little in Britain, the loss of AZ and its almost seven thousand UK-based jobs would put those very jobs in harm's way, and this is key to the very vocal opposition to Pfizer's acquisition of AZ.
Thus the Shire deal could proceed with little fuss, except that in this case Shire CEO Flemming Ornskov is making his own case for independence, particularly in the face of what he deems an under-priced offer. He has laid out plans to double revenue to $10B by 2020, with three-quarters of that derived from marketed drugs (e.g. Vyvanse for ADHD) with the rest coming from pipeline. Additionally, Ornskov, no shrinking violet when it comes to acquisitions himself, has done six deals since his appointment just over a year ago (including the $4.2B acquisition of Viropharma) and while Shire's market cap was $19B when he took over, it currently sits at $44B - so he's in a very strong position with shareholders and analysts alike!
Ironically, all of this attention has only initiated a feeding frenzy of acquisition interest around Shire, and even Botox-maker Allergan, in its own contentious fight for control with Quebec-based Valeant, has been circling the wagons around a potential Shire takeover. It could all be a very smart play by Ornskov to drive the price up, and analysts believe that once a bidder hits above the magic £50 per share (the previous AbbVie offer was around £46) then Shire may have to accede. This may also be the case even for AZ, if Pfizer returns to the table as early as August with an even stronger offer, as predicted by various analysts and insiders on that deal.
It's all grist to the mill, as they say in the trade, and once a perfectly acceptable price has been offered for the grist, well, what are you gonna do? This is the question facing the CEOs, boards, shareholders and lawmakers involved in these massive potential deals, and rather them than me! At AmorChem we also have a growing portfolio of candidates including those for rare diseases, like Shire, but so far at least we don't have to face the billion dollar (plus) question!
My biggest question right now is whether to go running on a lush green mountain or to collapse into soft cushioning on an equally lush green terrace. Questions, questions! But you know, one can have it all, some of the time, so off to my personal Everest I go, and then I get to collapse into a hammock, guilt-free. Now that's a win-win!
[In a timely update to this post, as of its publication this morning it was announced by AbbVie CEO Richard Gonzalez that the offer is being sweetened by around 11 percent, bringing the price-per-share up to around £51. It did not seem to go down well with Shire that this announcement was made public prior to Shire actually receivng any such offer, and the fact that Gonzalez indicated that he had had discussions with controlling Shire shareholders who now support the deal - in the absence of written statements to that effect - is unlikely to bring the parties closer. In fact, Gonzalez has just been forced to retract the statements regarding having the support of majority shareholders at Shire. If Shire are unwilling to come to the table and begin negotiations based on this new offer, it seems that this may indeed turn into a hostile takeover.]
When Pfizer was attempting to swallow up AZ, it caused national outrage at a level that roped in the fury of various MPs and escalated all the way up to James Cameron, the UK's Prime Minister. This led to a grilling of Pfizer CEO Ian Read that made one think he was actually Gordon Gekko, corporate raider extraordinaire, and not the legitimate head honcho of a money-printing big pharma company. I am not even sure that Tony "Wayward" Hayward (ex-BP CEO during the Gulf Of Mexico crisis in 2010) got treated with such paranoid suspicion, even after his now legendarily devastating PR soundbite from Hell's darker chambers - "There's no one that wants this over more than I do. I'd like my life back."
That short line was truly a nail in the vampire's coffin, if not an outright stake through its heart, as the rich black blood pumped vigorously all over the real coffin that the Gulf Coast had by then become. But I digress, and even though Ian Read was treated with a similar degree of vitriol, all he was trying to do was enact a little bit of corporate raiding, with no devastation to wildlife populations or pollution of seafronts or unemployment creation for thousands of people - right?
Well, right, but maybe wrong on that last point! The major difference between AZ and Shire is that, perhaps ironically, Shire is viewed as inherently less "British"" than AZ. While Shire has been in the UK since around the mid-eighties, it conducts most of its business in the US and has a tax berth in Ireland, where corporate tax rates are some of the lowest available on the planet, at around 12 percent currently. When you factor in that the UK is still around double that and that the rate in the US is around a whopping 35 percent, you can see where the value in such deals is truly derived, at least in part.
Of course, Shire does have a fantastic pipeline and its speciality in rare diseases is an aspect that AbbVie has a keen interest in assimilating, and thus it is overall an incredibly attractive acquisition target for AbbVie - even at the whopping price of $46B. The lack of furore in the UK over this deal probably goes back to that last point above - jobs. While the takeover of Shire and its US-based operations and workforce would impact employment very little in Britain, the loss of AZ and its almost seven thousand UK-based jobs would put those very jobs in harm's way, and this is key to the very vocal opposition to Pfizer's acquisition of AZ.
Thus the Shire deal could proceed with little fuss, except that in this case Shire CEO Flemming Ornskov is making his own case for independence, particularly in the face of what he deems an under-priced offer. He has laid out plans to double revenue to $10B by 2020, with three-quarters of that derived from marketed drugs (e.g. Vyvanse for ADHD) with the rest coming from pipeline. Additionally, Ornskov, no shrinking violet when it comes to acquisitions himself, has done six deals since his appointment just over a year ago (including the $4.2B acquisition of Viropharma) and while Shire's market cap was $19B when he took over, it currently sits at $44B - so he's in a very strong position with shareholders and analysts alike!
Ironically, all of this attention has only initiated a feeding frenzy of acquisition interest around Shire, and even Botox-maker Allergan, in its own contentious fight for control with Quebec-based Valeant, has been circling the wagons around a potential Shire takeover. It could all be a very smart play by Ornskov to drive the price up, and analysts believe that once a bidder hits above the magic £50 per share (the previous AbbVie offer was around £46) then Shire may have to accede. This may also be the case even for AZ, if Pfizer returns to the table as early as August with an even stronger offer, as predicted by various analysts and insiders on that deal.
It's all grist to the mill, as they say in the trade, and once a perfectly acceptable price has been offered for the grist, well, what are you gonna do? This is the question facing the CEOs, boards, shareholders and lawmakers involved in these massive potential deals, and rather them than me! At AmorChem we also have a growing portfolio of candidates including those for rare diseases, like Shire, but so far at least we don't have to face the billion dollar (plus) question!
My biggest question right now is whether to go running on a lush green mountain or to collapse into soft cushioning on an equally lush green terrace. Questions, questions! But you know, one can have it all, some of the time, so off to my personal Everest I go, and then I get to collapse into a hammock, guilt-free. Now that's a win-win!
[In a timely update to this post, as of its publication this morning it was announced by AbbVie CEO Richard Gonzalez that the offer is being sweetened by around 11 percent, bringing the price-per-share up to around £51. It did not seem to go down well with Shire that this announcement was made public prior to Shire actually receivng any such offer, and the fact that Gonzalez indicated that he had had discussions with controlling Shire shareholders who now support the deal - in the absence of written statements to that effect - is unlikely to bring the parties closer. In fact, Gonzalez has just been forced to retract the statements regarding having the support of majority shareholders at Shire. If Shire are unwilling to come to the table and begin negotiations based on this new offer, it seems that this may indeed turn into a hostile takeover.]
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