AbbVie's gaze puts the brakes on Shire's plans for major M&A

Shire CEO Flemming Ornskov

This year's explosion of pharma deals, both real and rumored, has put a spotlight on the U.K.'s complicated, far-reaching rules on corporate takeovers, and AbbVie's ($ABBV) $46 billion pursuit of Shire ($SHPG) has teased out a new wrinkle. Under local law, the Irish-headquartered Shire is unable to make any big buyouts of its own until AbbVie's pitching period expires, a provision that has hamstrung the company's deal-friendly ethos, CEO Flemming Ornskov said.

Back in May, when AbbVie made its first of three overtures to Shire, "there were a number of large opportunities that we were considering, pursuing, preparing for or engaging in," Ornskov told The Wall Street Journal. However, under U.K. takeover rules, Shire cannot make a deal worth more than 10% of its market cap, or roughly $4.5 billion, until AbbVie's window for negotiation ends on July 18.

That's a considerable constraint for Shire, which has grown into a serial acquirer and bought up 6 companies since Ornskov took over last year. Analysts have long said Shire's best defense against unwanted M&A attention is to do some shopping of its own, and Ornskov said he's keeping an eye out for value-adding deals, including some that would outstrip the company's current $4.5 billion price cieling.

The Telegraph reports that AbbVie's initiation of an offer period halted Shire's efforts to acquire NPS Pharmaceuticals ($NPSP) for about $5 billion, though NPS has denied ever entering talks with the company. Ornskov has been reluctant to comment on specific targets but said he is still "significantly in the market for assets that would strengthen our growth and strengthen our pipeline."

"If I am given leeway, there are a few phone numbers I can execute on immediately," he told WSJ.

In the meantime, Shire has taken a page from its predecessor AstraZeneca ($AZN), which has for now writhed free of would-be acquirer Pfizer ($PFE). The company laid out an ambitious plan to double its revenue to $10 billion a year by 2010, with $7 billion coming from on-the-market products like the ADHD treatment Vyvanse and rare disease therapy Firazyr and the the remaining $3 billion flowing out of Shire's pipeline.

Notably, that $10 billion figure doesn't factor in the benefits of any potential M&A. As Ornskov has said in the past, "If I included that in the upside, it would be way north of $10 billion."

Meanwhile, AbbVie is thought to be retooling for a fourth, larger bid for Shire, and, unlike Pfizer, the company hasn't ruled out making a hostile attempt at control. Shire has rejected each of its offers as far too low, and while a magic number may exist, Ornskov said he and his board don't believe AbbVie has come anywhere close to it just yet. 

AbbVie CEO Richard Gonzalez has mounted a PR campaign of his own, telling analysts and investors that, by absorbing Shire's pipeline and favorable tax situation, his company will be in a position to ratchet up R&D spending and improve its standing among global biopharmas.

- read the WSJ interview
- here's the Telegraph article

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