June 26, 2019

Drugmaker AbbVie on Tuesday announced that it plans to buy Allergan, the maker of Botox, for about $63 billion in cash and stock—a deal worth $80 billion after accounting for debt.

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Deal details

Under the deal, AbbVie will pay 0.866 of its shares and $120.30 in cash for each share of Allergan, which on Monday was worth about $188.24 a share, the companies said. The deal represents an almost 45% premium on Allergan's closing share price Monday, according to the Wall Street Journal.

The addition of Allergan would add almost $16 billion in annual revenue to AbbVie.

The deal is the second-largest pharmaceutical purchase announced this year, after Bristol-Myers Squibb announced in January its plans to purchase Celgene for $74 billion.

Allergan directors, including CEO Brent Saunders, would join AbbVie's board after the purchase is completed. The deal is expected to close in early 2020.

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

Implications

The move comes as AbbVie prepares for the expiration of its patent on Humira, the top-selling drug in the world, according to the Wall Street Journal. Last year, 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 as it faces the loss of patent protection for Humira," the New York Times reports.

AbbVie CEO Richard Gonzalez said the acquisition "will have a profound impact on AbbVie's overall growth story, while addressing concerns about the company's reliance on Humira." He added, "This is a transformational transaction for both companies and achieves unique and complementary strategic objectives."

David Maris, an analyst for Wells Fargo, said "This is the age of blockbusters. And when blockbusters start to go away, companies don't have too many things they can do" (Thomas/de la Merced, New York Times, 6/25; Lombardo et. al., Wall Street Journal, 6/25; Spalding/Griffin, Bloomberg, 6/25).

Next, learn how mega-mergers could impact your organization

Health care mergers and acquisitions are hardly new, but many recent transactions involve vertical integration: new-in-kind combinations of major players resulting in unprecedented scale and scope.

Use this research report to plan for integrators' possible moves, forecast potential effects on your organization, and create a plan to defend against or capitalize on the changes.

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