Great Deal! AbbVie Will Buy Shire and Investors Will Be Rewarded
NEW YORK (TheStreet) -- Nothing gets investors riled up like mergers and acquisitions. A great deal can present a company that has tons of cash with instant access to growth, allowing it to conquer new markets that would have otherwise take years to achieve.
AbbVie, which saw an almost 9% jump in its stock price when the rumors of the deal first emerged two weeks ago, has given back almost all of those gains. With Thursday's close of $55.79, shares are still up almost 6% year to date.
These deals take time. Medtronic's
Negotiating tactics aside, what I think is most important to remember are the accretive benefits for the acquiring companies. In the case of AbbVie, there are plenty, which should boost the stock towards the $70 level in the next 12 months.
According to Mark Percell, analyst at Barclays, a deal for Shire could yield close to 20% in accretive earnings for AbbVie in the next six years --and that's not even factoring AbbVie's already strong drug business being anchored by its blockbuster arthritis drug Humira.
Humira accounted for close to 60% of AbbVie's total revenue in 2013. AbbVie's management understands that it can't live on Humira indefinitely. This is where Shire comes in.
Shire would make AbbVie immediately more diversified. I believe Shire's ability to unlock incremental value to be the main reason why AbbVie recently upped its offer by 10%.