AbbVie Acquires Allergan for $63 Billion

Second Largest Pharmaceutical deal of 2019 after Bristol-Myers Squibb's acquisition of Celgene - $ 74 B

COMPANY PROFILE

AbbVie – Drug Manufacturer that originated as a spin-off of Abbott Laboratories. AbbVie’s products are focused on treating conditions such as chronic autoimmune diseases in rheumatology, gastroenterology and dermatology; oncology, including blood cancers etc. Has made one of the best selling drugs in the world – Humira

Allergan – Known for making Botox, it primarily focuses on four key therapeutic areas including medical aesthetics, eye care, central nervous system and gastroenterology.

DEAL TERMS

o Exchange Ratio : 1 Allergan Share – $120.30 in cash and 0.8660 share in combined AbbVie. Total consideration price – $188.24/Share – This is 45% premium on closing stock price of Allergan as on 6/24/19

o Post Acquisition Shareholding Ratio : AbbVie shareholders– 83% ; Allergan shareholders – 17%

o AbbVie BOD will include 2 board members from Allergan

o Allergan not to be dissolved

SHAREHOLDER VALUE CREATION

o Generate > $2 B pre tax synergies and cost savings by year 3

o EPS Accretion : 10% Accretion in the first year since the transaction ROIC exceeds pre-merged AbbVie cost of capital.

o Generates significant operating cash flow to reduce debt and support a growing dividend.

POST ACQUISITION MARKET REACTION

AbbVie shares fell by about 16% on the news, while shares in Allergan rose by about 25%.

LEAD ADVISORS

AbbVie – Morgan Stanley

Allergan - J.P. Morgan Securities LLC

BACKGROUND TO THE DEAL

The move comes as AbbVie prepares for the expiration of its patent on Humira, the top-selling drug in the world.

Humira drove $19.1 billion of AbbVie's $32.8 billion in revenue, but biosimilar versions of the drug currently are for sale in Europe and are scheduled to go on sale in the United States in 2023.

The acquisition of Allergan would allow AbbVie to bypass the risky process of research and development by buying a portfolio of popular products.

SYNERGY

o The combined company will consist of several attractive franchises with leadership positions across immunology, hematologic oncology, medical aesthetics, neuroscience, women's health, eye care and virology. Allergan's product portfolio will be enhanced by AbbVie's commercial strength, expertise and international infrastructure.

o The combined companies generated $19 billion in operating cash flow in 2018. This will help in paying down the debt from the deal.

o Also, the therapeutic areas of AbbVie and Allergan are set to grow at high single digit rate well into the next decade.

Authored by:

Sushil Krishnan

President '19