Takeover Tango: Healthcare's Best Dance Partner Is...

Buying a drug company ain't what it used to be.

Once upon a time, a larger pharmaceutical firm would make an offer for a smaller company. Said smaller drugmaker would swoon at the immediate gains for its shareholders. The deal would go through -- and everyone lived happily ever after. At least, that's how the story frequently unfolded.

Now, though, parties involved in a potential merger or acquisition are likely to perform a delicate dance back and forth for all the world to see. Sometimes, this results in a match made in heaven. And sometimes one company is left standing alone on the dance floor. AbbVie and Valeant Pharmaceuticals are the latest waiting to see how their drugmaker deal dances will end.

The fleeing foxtrot
AbbVie recently discovered that the third time isn't always the charm. Shire Plc rebuffed last week's acquisition offer by AbbVie -- just as it did two earlier attempts. The Dublin, Ireland-based firm thinks remaining solo will provide shareholders more value.

In an interview with The Wall Street Journal on Monday, Shire CEO Flemming Ornskov predicted that revenue will double by 2020 to $10 billion. Ornskov says that 30% of that revenue will stem from drugs currently in Shire's pipeline. If he's right, the $46.5 billion offer by AbbVie isn't high enough.

That kind of growth surely interests AbbVie, which receives the bulk of its sales from a single drug: Humira. Perhaps just as enticing, though, is the prospect of reducing its corporate taxes by taking advantage of Shire's Irish domicile. It takes two to tango, though. At this point, it looks like AbbVie's bid will have to increase significantly for Shire to be wooed successfully. 

The slideshow salsa
Allergan stands out as another reluctant dance partner. Valeant mounted a hostile acquisition attempt last week. Of course, this story is pretty well-known by now, as Valeant and investor William Ackman's Pershing Square Capital Management combining in April to make a play for Allergan.

This pharmaceutical promenade featured a slideshow battle. A couple of weeks ago, Allergan released a presentation highlighting the reasons why a deal with Valeant didn't make sense. One key argument contrasted the "strong, long-term organic growth" of Allergan with the "anemic growth" powered largely by "unsustainable price increases." 

Valeant fired back on Monday with a point-by-point rebuttal of Allergan's slideshow. In response to the allegation of anemic growth, Valeant stated that it has "averaged ~7% pro forma organic growth since 2010" with 13 of its top 15 products experiencing growth -- nine of which are seeing volume growth.  

Judging the dancers
Are these companies ready to keep this going -- or will they just trip? It's not difficult to see why AbbVie and Valeant have their sights set on Shire and Allergan, respectively. But the best dancer award out of these four organizations should go to Shire.

AbbVie's offer for Shire helped jump-start the Irish pharmaceutical firm's stock. Shire's decision to resist the temptation to sell appears to be the right move. Even if projections of a doubling of sales by 2020 proves overly optimistic, shareholders should be able to fetch a better price in the future than AbbVie's previous offers. The truth is that AbbVie needs Shire more than Shire needs AbbVie.

Rumors have also floated that Allergan could make a bid for Shire to thwart a hostile takeover by Valeant. While such an offer hasn't materialized yet, it underscores the attractiveness of the Irish drugmaker. Who will end up scooping up Shire, if anyone, remains to be seen. I don't think we've seen the high mark for the stock yet, though. For now, the dance goes on.