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AbbVie forced to retract claims of Shire investor support

Ben Hirschler
Dawson | Bloomberg | Getty Images

U.S. drug maker AbbVie has been forced to retract comments by its chief executive about shareholder support for its $51 billion bid for Shire after being caught out by British takeover rules.

Chief Executive Richard Gonzalez told Reuters in an interview on Tuesday he believed major Shire investors were "generally supportive of this transaction" a comment he repeated in conversations with other media.

Under Takeover Panel rules, designed to ensure fair treatment for all investors, a company attempting to acquire a rival is not allowed to claim support for its bid unless it has this in writing from shareholders.

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"AbbVie confirms that it has not received any written commitments of support and accordingly retracts the statements," it said on Wednesday.

The error is a further example of the strict nature of British takeover rules, which also caused problems for Pfizer during its unsuccessful bid for AstraZeneca earlier this year.

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The retraction is embarrassing for AbbVie and its key advisers – investment bank J.P. Morgan and public relations firm Brunswick, both of which also advised Pfizer. Pfizer limited its options and caused some market confusion when it declared its $118 billion offer for AstraZeneca "final".

AbbVie's climb down is further evidence of how closely the Takeover Panel is monitoring bid situations. The watchdog also forced U.S. medical devices firm Stryker to announce in May it did not intend to make an offer for Smith & Nephew following a report it was considering a bid.

Waiting for Shire

AbbVie raised its offer for Shire to 30.1 billion pounds ($51.3 billion) on Tuesday, hoping to win over its reluctant target after three earlier offers were rejected.

Shire has yet to respond to the latest cash-and-stock offer, which was worth 51.15 pounds a share at July 7 prices, or 11 percent more than AbbVie's previous proposal. It said on Tuesday that its board was meeting to consider it.

Industry analysts said it was unlikely to be enough to get a deal done but it could bring Shire to the negotiating table. Several analysts have valued Shire in the mid-50s pounds per share or higher.

However, with AbbVie's shares falling 3 percent on Tuesday, the actual value of the latest offer has fallen to 50.19 pounds per share, which Panmure Gordon analyst Savvas Neophytou said was inadequate and was likely to be rejected by the Shire board.

Other analysts said Shire's board might try to seek alternative offers in order to push the price higher, although AbbVie's Gonzalez told Reuters he was not aware of any counterbidders interested in the company.

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Shire shares were down 1.3 percent at 44.70 pounds by 1120 GMT.

The silence from the Shire camp and the failure by AbbVie to land a decisive blow has prompted some hedge funds to take profits, according to people close to the situation.

Worries that the two sides may not manage to reach a deal, as happened with Pfizer-AstraZeneca, has fuelled volatility in Shire shares, which fell back sharply on Tuesday after initially rising on news of the raised bid.

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AbbVie may have some room to offer more but is likely to be constrained by a desire to maintain its investment grade credit rating.

The U.S. company is eager to buy Shire both to reduce its tax bill by moving its tax base to Britain - a tactic known as inversion - and to diversify its drug portfolio by adding Shire's specialised drugs for hyperactivity and rare diseases.

Moody's Investors Service said the latest increased offer was credit negative as it would raise AbbVie's financial leverage, with its ratio of debt to earnings before interest, taxes, depreciation and amortisation (EBITDA) expected to reach a range of 3.2 to 3.6 times, compared to 2.2 times at the end of March.