Shareholders in UK pharmaceuticals group Shire (SHP) have been handed a kick in the teeth as its previously agreed £32 billion takeover is unceremoniously dumped. Shire saw 22% of its market value wiped out yesterday when as US rival AbbVie (ABBV:NYSE) admitted to mulling a re-think over its protracted offer made in July.
Confirmation today that the US group's board is recommending that its own shareholders pull the plug has sparked another hefty sell-off in Shire's shares, falling around 7.5% to £37.19.
Chicago-based AbbVie blames recent changes to so-called tax inversion rules in the US. The changes involve tightening the rules and closing loopholes, such as taxing loans made to US companies by their international subsidiaries. AbbVie was facing a tax rate in excess of 30% this year.
Pulling out of the deal will cost the US group plenty. Under a negotiated break clause, Shire stands to collect around £1 billion in penalty payments. Yet that's small compensation given the £7 billion swiped off Shire's market value in two days. On Tuesday, Shire shares closed at £51.40.
With Shire now looking almost certain to retain its independence, what next? Expansion seems probable, with plans likely to be laid out sooner rather than later to bolster its product portfolio.
Most famous for its attention deficit and hyperactivity disorder (ADHD) drug Adderall, the group is already facing generic competition after US regulators turned-off the patent protection taps in 2012.
Shire will now concentrate on another ADHD treatment, Vyvanse, plus Lialda, a gastrointestinal remedy. But a more robust product pipeline will be required.
Prior to AbbVie’s approach, Shire increased its borrowing capacity to $12 billion, with pipeline acquisition plans already in mind. With the extra £1 billion or so from the AbbVie break clause reparation, Shire coffers and acquisition firepower will be swollen still further. But the challenge will be finding the right targets, and getting them for the right price.