AbbVie Trod Cautiously In Inversion Takeover Bid To Woo Drug Maker Shire

Published: Jul 25, 2014

AbbVie Trods Cautiously In Inversion Takeover Bid to Woo Drug Maker Shire
AbbVie Trod Cautiously In Inversion Takeover Bid To Woo Drug Maker Shire
July 25, 2014
By Renee Morad, Breaking News Staff

Thanks to a cautious and strategic approach to its bidding wars, AbbVie persuaded U.K. drug maker Shire PLC to accept a $54 billion takeover in mid-July. The steps that lead to inking the deal made all the difference in AbbVie’s success story.

It all began when Richard Gonzalez, chief executive of Chicago-based drug maker AbbVie, called Susan Kilsby, who had taken the position of chairwoman of the drug maker Shire less than a week prior. AbbVie, which had the world’s best-selling drug in Humira, was interested in Shire’s rare diseases work and neuroscience franchises.

Gonzalez stated there was an “important corporate matter” he wanted to discuss, which Kilsby knew was code language in the mergers and acquisitions fields that indicated a takeover approach was on the horizon.

Kilsby was the former head of Credit Suisse’s European mergers and acquisitions practice and was accustomed to the delicate balancing act of takeover negotiations.

Kilsby was prepared to give AbbVie a fighting chance, but she wasn’t yet aware of AbbVie’s internal plans to trod cautiously.

Both sides knew that these kinds of deals evaporate into thin air frequently. British drug maker giant AstraZeneca, for example, recently had a $119 billion offer from Pfizer backfire after unsuccessful bidding.

During the first meeting between AbbVie and Shire in Geneva the week following the initial phone call, Gonzalez offered to acquire Shire for 39.50 pounds a share, or approximately $40 billion.

One week later, Shire’s board notified AbbVie that it was not interested.

AbbVie didn’t back down. With its advisers at JPMorgan Chase, the drug maker continued negotiating while balancing cross border regulations, a short time frame and international shareholders, according to interviews with people familiar with the negotiations as cited in the New York Times.

AbbVie signed on JPMorgan as its exclusive adviser and the provider of its entire bridge loan, worth $23 billion, to finance the deal. This marked the largest bridge loan ever done by a single bank.

Gonzalaez submitted another offer in late May for more than 40 pounds a share. Shire responded that the bid “fundamentally undervalues the company.”

In early June, AbbVie made a third bid worth 46.26 pounds per share. Kilsby took her time to respond but agreed to meet with AbbVie.

When the two sides met in Paris, Kilsby was joined by Gonzalez and Shire’s chief, Flemming Ornskov.

That same day AbbVie was notified that Shire was still not interested.

Gonzalez’s persistence continued with another call to Kilsby, asking her to reconsider and intimidating that he would not shy away from a public fight.

Just days after the sides met in Paris, news of AbbVie’s bidding for Shire leaked after over a month of private talks. Under British takeover rules, AbbVie had to acknowledge its interest.

AbbVie decided to announce te series of bids, rather than the most recent bid, to reduce the risk of Shire’s stock running up too much. AbbVie also noted Shire’s progress and emphasized the merits of a combination.

In comparison to the recent AstraZeneca deal, in which Pfizer publicly acknowledged that it would not make a hostile bid and belittled the company’s performance and management team, AbbVie decided to take the opposite approach.

In another meeting in late June at the Boston Harbor Hotel, Shire shareholders informed Gonzalez that they were intrigued by the deal but still not happy with the price. AbbVie again raised its bid, offering 51.15 pounds per share.

Following a suggestion from AbbVie, Shire’s top 20 shareholders, including BlackRock, then sent letters to Kilsby, encouraging the company to pursue a deal.

By mid-July, Shire responded, saying it would recommend a deal worth 53.20 pounds per share, or $54 billion. Kilsby also acknowledged that the shareholder letters made an impression.

There were still some uncertainties. A major attraction of the deal was AbbVie’s ability to reincorporate in the U.K., lowering its tax rate, but both sides new that lawmakers in Washington are considering retroactive legislation that would target such deals, also referred to as inversions.

Shire agreed to accept a $500 million fee in the event that AbbVie shareholders failed to approve the deal.

Soon after, the boards of each company met – Shire in Geneva and AbbVie in Chicago. The next day, on July 17, 2014, the $54 billion takeover was made public, marking the biggest deal of the year.

Read more recent mergers and acquisitions here.

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