Why Shire PLC Shares Soared By $37

Shire rockets higher after confirming an unsolicited bid by rival AbbVie. Find out what this offer was really all about and what investors should do about it.

Jun 20, 2014 at 2:30PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Shire (NASDAQ:SHPG), a Irish-based global pharmaceutical company perhaps best known for its line of attention deficit hyperactivity disorder drugs, surged as much as 20%, or $37, after the company confirmed that rival AbbVie (NYSE:ABBV) had made an unsolicited bid to buy Shire.

So what: According to Shire's press release, AbbVie approached Shire with an unsolicited bid on May 30 that would have totaled about $46 billion in a mix of cash and stock, valuing Shire 23% higher than its previous day's closing price. However, the proposal was rebuffed by Shire with its board of directors believing it undervalued Shire and its pipeline. Shire's board notes that it anticipates doubling its annual revenue from $10 billion in 2013 to $20 billion by 2020, and believes the purchase price would deny current shareholders the benefits of Shire executing on its strategies.

Now what: What this is really all about is the continuing theme of mergers and acquisitions in foreign markets to escape high U.S. corporate taxes, whether the companies involved seem to want to admit it or not. AbbVie does have the current best-selling drug in the world, Humira, set to lose its first patents within a few years, so it'll have a gaping $10 billion-plus per year hole in revenue to soon fill. Shire would have certainly diversified AbbVie's product line and helped its cause. Not to mention, cost synergies from combining research department likely would have saved millions of dollars.

However, the real allure here is Shire's Irish address. If AbbVie were to successfully purchase Shire it could move its corporate headquarters to Ireland where corporate marginal taxes top out at 12.5% compared to a top-end corporate marginal tax rate of 40% in the U.S. – the second highest in the world. With deductions, most Irish multinationals can get their corporate tax rate into the single-digits, which for a company their size could mean hundreds of millions in tax savings. At its currently inflated price I'm not too particularly fond of Shire and would wait for a significant pullback before considering it as an investment, though AbbVie could make for an intriguing play if its hepatitis C direct-acting antiviral is approved by the Food and Drug Administration before the end of the year and launches successfully.

Shire may have soared today, but it's unlikely to be able to keep pace with this top stock over the long haul
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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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