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Allergan adopted the poison pill defense this week.
Chief Executive Officer David Pyott has been signaling this year that he's ready to make some acquisitions. The $32.5 billion market cap Irish drugmaker Shire may have been a little bigger than he had in mind, but one analyst said that could change.
"An inversion into Shire could be interesting," Cowen's Ken Cacciatore wrote Thursday in a research note. "Do not sell Allergan shares just yet."
Chief among Shire's attractions is its Irish domicile, and the lower corporate tax rate that comes with it. Several drugmakers have been making purchases on the Emerald Isle, from Perrigo's $8.6 billion acquisition of Elan to Actavis' $5 billion play for Warner Chilcott last year. Actavis' move followed reports that it, too, was being targeted by Valeant, along with drugmaker Mylan.
Cacciatore paints a scenario that assumes Irvine, Calif.-based Allergan would pay a 25 percent premium to Shire's price, or about $205 a share, making an acquisition size of about $40 billion (just a bit smaller than Valeant's offer for Allergan, valued around $45 billion to $50 billion). Allergan could fund it with stock, debt and cash on hand. He sees as much as $1.25 billion in "combined entity synergies," or potential cost cuts.
"We find that the deal is exceedingly accretive, with Allergan pro forma 2015 earnings of $11.15, rising to $13-plus in 2016," Cacciatore wrote. "Our assumptions above include absolutely no pipeline success, but are simply the current on-market commercial assets for both companies. At 15-16x the 2016 figures would yield $195-$210 a share."
Allergan's stock is trading around $165, having jumped 15 percent on news of Valeant's offer.
With Shire, Allergan would gain the ADHD drug Vyvanse, which drew $1.23 billion in 2013 revenue. Shire also focuses on rare diseases, with drugs like Elaprase for an enzyme deficiency called Hunter syndrome and Replagal for Fabry disease drawing $546 million and $468 million last year, respectively.
And the 12.5 percent Irish corporate tax rate can't be ignored—despite Pyott's comments earlier this year that he's unlikely to step in line with industry trends and seek acquisitions there.
Allergan, whose most famous product is the wrinkle buster Botox, had cash and equivalents of $3.05 billion at the end of 2013, and revenue for the year of $6.3 billion. Shire had $4.9 billion in 2013 revenue.
Cacciatore concedes that "given the very rapid and innovative approach that Valeant has taken, it is indeed most likely that it will successfully consummate this transaction." But he also stresses that investors shouldn't count Allergan out just yet.
Allergan and Shire declined to comment. Valeant didn't immediately respond. Pershing Square, Allergan's largest shareholder, also declined to comment. Pershing's Bill Ackman is aligned with Valeant on the deal, implying that at least his nearly 10 percent of the stock would not be behind a deal for Shire.
Allergan adopted the poison pill—officially known as a shareholder rights plan—on Tuesday night. It's designed to prevent Ackman from acquiring more shares. Allergan noted that the poison pill wasn't designed to prevent an acquisition that its board deemed favorable—just to provide it enough time to assess any offer.
—By CNBC's Meg Tirrell.