North Chicago-based AbbVie has presented a $63-billion, cash-and-stock offering to shareholders of Ireland-based Allergan, representing a 45% premium over the latter’s June 24 stock price. AbbVie expects the completion of the acquisition to take the rest of this year. In a written statement about the merger, AbbVie said that the financial payoff is clear: “The financial benefits include immediate 10% earnings-per-share accretion over the first full year of the combination, with peak accretion of greater than 20%. The transaction will generate annual pre-tax synergies and other cost reductions of at least $2 billion in year three, with a return on invested capital to exceed AbbVie’s cost of capital within the first full year.” Although no mention of plant closings or layoffs was announced, the company believes those savings will come from rationalizing R&D programs, and also in reducing sales and marketing expenses.
Half of AbbVie’s current revenue comes from one drug—Humira (adalimumab), for which the US patent is expected to cease in 2023. Allergan is best known for its aesthetics product, Botox, as well as ophthalmic products. Both companies have undergone multiple changes over the past decade; AbbVie itself was spun out of Abbott Laboratories in 2013; it acquired Pharmacyclics in 2015 for $21 billion, and Stemcentrx for $9.8 billion in 2016.
Allergan started decades ago as Watson Pharmaceuticals; when it acquired (for over $5 billion) Actavis, in 2014, it took that company’s name, and after another acquisition (Warner Chilcott, in 2013), moved its domicile to Ireland as a “corporate tax inversion” that lowered its tax rate. That was followed by the purchase of Forest Laboratories in 2014, for $25 billion, and the acquisition of Allergan for $70 billion, in 2015, after which it repeated taking the corporate name of the acquired company. Interestingly, AbbVie is not doing the tax inversion following this merger; according to press reports, the 2017 tax reforms make that stratagem unattractive.
Richard Gonzalez, AbbVie chairman and CEO, will retain that title; Two members of Allergan’s Board, including chairman and CEO Brent Saunders, will join AbbVie’s Board upon completion of the transaction.