Takeover Tango: Healthcare's Best Dance Partner Is...

AbbVie and Shire. Valeant and Allergan. The drugmaker deal dances are underway -- but it takes two to tango.

Jun 24, 2014 at 5:00PM

Buying a drug company ain't what it used to be.

Once upon a time, a larger pharmaceutical firm would make an offer for a smaller company. Said smaller drugmaker would swoon at the immediate gains for its shareholders. The deal would go through -- and everyone lived happily ever after. At least, that's how the story frequently unfolded.

Now, though, parties involved in a potential merger or acquisition are likely to perform a delicate dance back and forth for all the world to see. Sometimes, this results in a match made in heaven. And sometimes one company is left standing alone on the dance floor. AbbVie (NYSE:ABBV) and Valeant Pharmaceuticals (NYSE:VRX) are the latest waiting to see how their drugmaker deal dances will end.

The fleeing foxtrot
AbbVie recently discovered that the third time isn't always the charm. Shire Plc (NASDAQ:SHPG) rebuffed last week's acquisition offer by AbbVie -- just as it did two earlier attempts. The Dublin, Ireland-based firm thinks remaining solo will provide shareholders more value.

In an interview with The Wall Street Journal on Monday, Shire CEO Flemming Ornskov predicted that revenue will double by 2020 to $10 billion. Ornskov says that 30% of that revenue will stem from drugs currently in Shire's pipeline. If he's right, the $46.5 billion offer by AbbVie isn't high enough.

That kind of growth surely interests AbbVie, which receives the bulk of its sales from a single drug: Humira. Perhaps just as enticing, though, is the prospect of reducing its corporate taxes by taking advantage of Shire's Irish domicile. It takes two to tango, though. At this point, it looks like AbbVie's bid will have to increase significantly for Shire to be wooed successfully. 

The slideshow salsa
Allergan (NYSE:AGN) stands out as another reluctant dance partner. Valeant mounted a hostile acquisition attempt last week. Of course, this story is pretty well-known by now, as Valeant and investor William Ackman's Pershing Square Capital Management combining in April to make a play for Allergan.

This pharmaceutical promenade featured a slideshow battle. A couple of weeks ago, Allergan released a presentation highlighting the reasons why a deal with Valeant didn't make sense. One key argument contrasted the "strong, long-term organic growth" of Allergan with the "anemic growth" powered largely by "unsustainable price increases." 

Valeant fired back on Monday with a point-by-point rebuttal of Allergan's slideshow. In response to the allegation of anemic growth, Valeant stated that it has "averaged ~7% pro forma organic growth since 2010" with 13 of its top 15 products experiencing growth -- nine of which are seeing volume growth.  

Judging the dancers
Are these companies ready to keep this going -- or will they just trip? It's not difficult to see why AbbVie and Valeant have their sights set on Shire and Allergan, respectively. But the best dancer award out of these four organizations should go to Shire.

AbbVie's offer for Shire helped jump-start the Irish pharmaceutical firm's stock. Shire's decision to resist the temptation to sell appears to be the right move. Even if projections of a doubling of sales by 2020 proves overly optimistic, shareholders should be able to fetch a better price in the future than AbbVie's previous offers. The truth is that AbbVie needs Shire more than Shire needs AbbVie.

Rumors have also floated that Allergan could make a bid for Shire to thwart a hostile takeover by Valeant. While such an offer hasn't materialized yet, it underscores the attractiveness of the Irish drugmaker. Who will end up scooping up Shire, if anyone, remains to be seen. I don't think we've seen the high mark for the stock yet, though. For now, the dance goes on. 

Dividend stocks that will have you dancing
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

 

Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Valeant Pharmaceuticals. The Motley Fool owns shares of Valeant Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers