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AbbVie: Shire Buy More Than Just Taxes

Persistence paid off for big pharma AbbVie Friday as it announced its takeover of Shire after its fifth attempt. At the same time, Shire reported its Q2 earnings ahead of schedule; the earnings beat analyst estimates.

AbbVie (ABBV) agreed to pay 24.44 British pounds plus 0.896 share of the combined company per Shire (SHPG) share. That's more than $54 billion, based on AbbVie's Thursday closing price.

AbbVie expects to close the deal this year and said it will be immediately accretive to earnings, with accretion rising to $1 a share by 2020.

The new firm will be domiciled in the U.K.

AbbVie said the move — along with the firm's efficient tax structure — will cut its tax rate from 22% now to 13% by 2016 .

On the conference call to discuss the merger, analysts pressed AbbVie CEO Richard Gonzalez for details, including why the tax projection was for 2016 instead of 2015. But U.K. takeover rules restricted what he could say.

Gonzalez stressed that taxes weren't the only reason AbbVie was so determined to get Shire. He cited Shire's strong portfolio of neurological, gastrointestinal and rare-disease drugs.

AbbVie, in fact, plans to create a rare-diseases division.

"This transaction has both a significant strategic and financial rationale," Gonzalez said. "Tax is clearly a benefit, but it's not the primary rationale for this.

For that reason, he brushed off concerns about the U.S. government's recent attacks on tax-inversion deals, including a call to retroactively forbid such moves by firms that have announced such deals since May. He did remark that he'd like to see more discussion about U.S. tax reform than about trying to stop companies from going abroad.

On the call, BMO Capital Markets analyst Alex Arfaei said he was surprised by Gonzalez's assertion that the deal wasn't tax-driven, as that's "not the perception out there.

Just last month, while Shire was still spurning AbbVie's bids, Shire CEO Flemming Ornskov told the Wall Street Journal, "I think the main strategic rationale here is tax inversion.

Ornskov wasn't on Friday's call, but Gonzalez said the Shire boss will stay on after the deal's close to help integrate the companies. It wasn't clear whether Ornskov will have a permanent role.

Two Shire directors will join AbbVie's board.

Shire released Q2 financial results, which had been set for July 30. Earnings leapt 42% vs. a year earlier to $2.67 a share, beating analyst estimates by 22 cents. Sales rose 20% to $1.5 billion, topping views by $50 million.

Shire's press release didn't change its recent guidance estimating $6.5 billion in 2014 sales.

Leerink analyst Jason Gerberry cut Shire's stock to market perform, saying he did not expect rival bids from Pfizer (PFE) or Allergan (AGN). Pfizer was rumored to be interested after AstraZeneca (AZN) rejected its tax-inversion attempt. Allergan reportedly mulled Shire as an escape hatch from Valeant Pharmaceuticals' (VRX) hostile takeover bid.

Shire stock jumped 16% on June 20, when the company revealed AbbVie's takeover bids, and has risen 15% since then, including Friday's 1.4% rise to 257.06. AbbVie rose 2.6% Friday.