Wall Street wonders what Shire is worth

The share prices of AbbVie ($ABBV) and takeover target Shire ($SHPG) keep drifting downward amid sustained uncertainty over a deal. A couple of healthcare investors we talked to feel the deal is by no means definite--a concern that is also reflected in the continued wide spread between the latest offer price and Shire's share price.

AbbVie only muddied the waters further as its chairman and CEO Richard Gonzalez reportedly made claims of Shire shareholder support that he was then forced to retract, since U.K. regulations require written confirmation prior to any such claims being made.

On Tuesday, AbbVie made its fourth offer for Shire: £51.15 per share that included £22.44 in cash and a 0.8568 portion of one AbbVie share. But the value of AbbVie's shares has been on the decline since, pushing the actual value of that offer down to about £49.92 by the end of Wednesday.

AbbVie CEO Richard Gonzalez

Despite AbbVie's ever-increasing offers, Shire shares closed on Wednesday at £45.19--well below even a revised offer price that takes AbbVie's recent share price decline into account. That almost £5 spread represents the continued uncertainty among investors about the culmination of a possible deal.

"AbbVie is not a done deal," said Sven Borho, a partner at healthcare investor OrbiMed Advisors. "In my opinion, there will be other bidders once Shire opens the books. There's too much uncertainty for the arbitrage investors to tighten the deal spread."

He expects other bidders could push the per share price for Shire much higher. "It's difficult to call the ultimate outcome--there are many possible bidders. I bet that the final offer price for Shire is £60," added Borho. "AbbVie is a real contender but I can imagine that Shire prefers other bidders over AbbVie, like large-cap biotech or Allergan." Allergan ($AGN) is fighting off a hostile takeover from Valeant Pharmaceuticals ($VRX), and others on Wall Street have also speculated about the potential for a combination of Allergan and Shire.

Les Funtleyder, a consulting partner with U.K. investment adviser BlueCloud Healthcare, wonders if Wall Street is fatigued a bit by all the wheeling and dealing among pharmas. He thinks some shareholders are starting to question the long-term value of this latest round of pharma megamergers, which are largely driven by financial engineering. He does see AbbVie and Shire as making some sense from a fundamental perspective, since the pair could combine specialty drug offerings.

But ultimately, it all boils down to whether Shire and its shareholders can fare better on their own without a deal. Funtleyder thinks it might be tough for the Irish pharma to make that leap: "With three bids and no takers, Shire doesn't seem motivated to close a deal. They could feel AbbVie needs them more than they need AbbVie." -- Stacy Lawrence (email | Twitter)

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