Shire shares rise on takeover bid expectations

Tuesday 17 June 2014 09.01
Shiare expecting to receive takeover approaches after a wave of deals in the healthcare sector
Shiare expecting to receive takeover approaches after a wave of deals in the healthcare sector

Shares in Shire rose today on bid expectations after Reuters reported that the drugmaker had hired investment bank Citi  as a defence adviser. 

Sources familiar with the matter said the London-listed company was expecting to receive takeover approaches following a wave of deals in the healthcare sector. 

Potential acquirers are eyeing Shire's tax base in Ireland, as well as its fast-growing portfolio of drugs to treat hyperactivity and rare diseases.

Shire, which was founded in 1986 in Britain but conducts most of its business in the US, has been domiciled in Ireland for tax purposes since 2008. 

It has already been approached by Botox-maker Allergan months before the US group itself became a takeover target for Valeant, Reuters reported earlier this year.

That approach did not lead to serious discussions between the two parties and there are currently no talks with Allergan, one source said. 

Shire is a relative rarity in being a mid-sized drugmaker with no controlling shareholder, making it a perennial subject of takeover speculation. 

Analysts think it could appeal to US pharmaceutical and biotech firms such as Bristol-Myers Squibb, Amgen, Abbvie, Gilead and Biogen. 

But Shire's reliance on ADHD drugs has put off potential bidders in the past, as using stimulants to treat ADHD in children is controversial in some doctors' eyes, they added.

ADHD medicines account for around 40% of Shire's sales. The firm also sells pricey drugs to treat rare genetic disorders and is building up a portfolio of treatments in ophthalmology and other speciality disease areas.

The current imperative for major drugmakers to keep up with rivals in terms of a low tax rate and to use offshore cash that would otherwise be taxed punitively if brought back home, could now be changing the calculation, some industry watchers believe.

The race to strike so-called "inversion" deals offering lower tax rates was underscored at the weekend when US medical device maker Medtronic agreed to buy Covidien for $42.9 billion and move its base to Ireland. 

Ireland is a particularly attractive destination for such transactions since it has a 12.5% corporate tax rate, compared with 35% in the US. 

A Reuters review showed about 50 such inversion deals had been done in the past 25 years, with half occurring since the 2008-2009 financial crisis abated.

"Any halfway decent, EU-based company will be looked at very seriously. The latest deals have upped the ante. The metric of purely strategic rationale has been put aside - anything is possible," said one analyst, who added that two or three more possible inversion deals could happen soon.

Some US lawmakers are concerned the deals erode government revenue by giving corporations a tax-avoiding loophole. Two bills in the US Congress and a White House proposal would make inversions harder to do, but neither has gained much traction. 

That could change if another major US company or two tried to conduct inversions, tax lawyers and analysts said last week.

US-based Pfizer's $118 billion bid for British drugmaker AstraZeneca was rejected last month, scuppering what would have been the largest such inversion deal, but there is speculation talks may yet revive. Under British takeover law, the UK firm can approach Pfizer at the end of August to discuss a sweetened bid, or Pfizer can try again in November.