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Why AbbVie may get easier ride than Pfizer in UK bid

JB Reed | Bloomberg | Getty Images

AbbVie's $46 billion bid for the U.K.'s Shire is unlikely to face the same level of government opposition and public protest that Pfizer ran into when it tried to buy AstraZeneca last month.

The tow bids have several things in common: a U.S. company seeking to cut its tax bill by buying a U.K.-listed company, and the need for pharmaceutical companies to bolster their pipelines.

However, Shire, the FTSE 100 pharmaceutical company which has been a rumored takeover target for the best part of a decade, is understood to have not approached the U.K. government for help defending itself against its U.S. predator, sources have told CNBC.

In fact, the deal is more likely to cause consternation in the U.S. than in London.

Pfizer's $106 billion bid for AstraZeneca this year was partly motivated by tax reasons – and met strong protests from U.K. lawmakers following lobbying from AstraZeneca.

However, Shire is already based overseas for tax purposes, and employs a few hundred people in the U.K., less than a tenth of its global workforce. In contrast, AstraZeneca still had a substantial manufacturing base in the U.K. and employed close to 7,000 people.

Shire is based in Dublin for tax purposes, and buying it may also enable AbbVie to take advantage of a "tax inversion" by spending overseas revenues rather than bringing them back to the U.S. to be taxed.

If AbbVie is successful, it plans to create "a new US listed holding company with a UK tax domicile," according to a statement from Shire.

The U.S. company has made three proposals since early May: The first at £39.50 per share; the third and most recent at £46.26, in a mixture of cash and AbbVie shares. Both represent a substantial premium to the share price of £37.38 at the close of Thursday. The final deal would have valued the group at some £27 billion ($46 billion).

Shire's share price shot up by 13 percent in early London trading Friday following the announcement and finished the session provisionally higher by 16.9 percent.

AbbVie said in a statement: "There can be no certainty that any firm offer will be made. Discussions are no longer ongoing."

The statement seemed to leave the door open for future discussions, however, with no indication that the £46.26 price tag was final.

The offer was described as "barely adequate" by Savvas Neophytou, analyst at Panmure Gordon, who argued AbbVie would have to come up with an offer over £50 per share to make the deal happen.

"Shire's rare diseases business is one of the hottest assets in biopharmaceuticals," he wrote in a research note.

This could kick off a takeover battle for Shire, a perennial takeover target. It initially built a niche with amphetamine-based drugs to treat ADHD, but has used the revenues from these treatments to expand into lucrative orphan diseases and specialty pharmaceuticals. U.S. based AbbVie, which was spun out of larger Abbot Laboratories last year, now has until July 18 to make a full and final offer.

Shire has previously stressed the importance to it of remaining independent. Flemming Ornskov, its chief executive who started at the company last year, has pursued an aggressive acquisitions policy, and the company expects to more than double its 2013 annual product sales to US$10 billion by 2020.

AbbVie is advised by JPMorgan, while Shire is advised by Citi, Evercore and Morgan Stanley.

- By CNBC's Catherine Boyle

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