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If only there were more space in the title line, I could have said, “Shire Shares Soar Sixteen Percent and Six Hundred Twenty-Six Pence. (I love alliteration and tongue-twisters, and now I think that I’ve created something to rival Peter Piper. In this case, not only is it fun to say, but it is true! (I’ve always wondered if Peter Piper really picked a peck of pickled peppers. Where’s the evidence? Think about it. If he really picked a peck of pickled peppers, where is the peck of pickled peppers that Peter Piper picked?
The Shire share price (LSE:SHP) really has soared by 16.75 per cent as of 14:25 today. Sixteen percent is a remarkable one-day gain for any stock, but it is even more remarkable when that 16% represents a change in a stock price that was already trading at 3,738.00.
The fuel that lit the Shire stock rocket this morning was the its curt response to a £27 billion ($46 billion) takeover bid from fellow pharmaceutical firm (love that alliteration) AbbVie (NYSE:ABBV). The New York Exchange has been open barely a half hour and the ABBV has begun to drop below its closing price yesterday at $54.19, apparently also on Shire’s rejection of the offer.
Shire is a specialty pharmaceutical company whose purpose is to “enable people with life-altering conditions to lead better lives.” There are many reasons why it is an attractive target for acquisition. But, given that the company is forecasting more than doubling its current revenues to $10 billion by 2020, Shire found that the premium of 30% per share offered by AbbVie undervalued the company.
Even more so, however, the Shire board rejected the AbbVie offer based on knowing AbbVie’s true intention, which is to establish a base in the UK, which the acquisition of Shire would provide, as a tax domicile, or as I prefer to call it, a tax-avoidance tactic.
I completely understand the M&A strategy as well as the tax-avoidance strategy. I can’t say that either of them are inherently right or wrong. For me, the acid test is two-pronged, and is based upon two of the four tests of “the things we think, say or do” established by Rotary International.
Is it FAIR to all concerned?
Will it be BENEFICIAL to all concerned?
Applying those principles in this case, I do not believe that the offer is either. Neither does Susan Kilsby, Shire’s Chairwoman. She said quite clearly that, “The Board believes the proposal fundamentally undervalued Shire and its prospects and that as an independent company Shire’s focused growth strategy will continue to deliver significant shareholder value and patient benefits.”
Apparently, Shire shareholders certainly solidly subscribe to that sentiment (alliteration!). In the time it has taken to write this 400+ word story, the Shire share price has risen to 4,470.00, a 19.58% gain of 732.00 pence,on the day.
I sure am glad that it hadn’t reached 19.58% before I started writing. I would have had the alliteration angle.
