William Chudd, 37, M&A partner in the New York office of Davis Polk & Wardwell.
Shire Plc, an Irish drugmaker with over $4.9 billion in revenue last year. While known for its products aimed at rare and serious health conditions, the company made 40 percent of its sales on treatments for Attention Deficit Hyperactivity Disorder.
After being rebuffed four times, Chicago-based AbbVie announced on Friday that it would acquire Shire for a sweetened offer of $54.8 billion in cash and stock.
The agreement calls for AbbVie to pay 24.44 pounds ($41.73) in cash and issue 0.8960 AbbVie shares for each Shire share—a 9 percent premium over Shire’s Thursday closing price and a 51 percent premium over its closing price on May 2, the last business day before AbbVie’s initial offer.
Shire’s shareholders are expected to hold approximately 25 percent of the new company once the deal closes.
Chudd’s deal team from Davis Polk includes corporate partner John Meade, litigation partner Lawrence Portnoy and counsel Scott Luftglass, M&A partner and practice cohead George Bason, tax partner Michael Mollerus and associates Daniel Brass and Michael Patrone. Shire also turned to Slaughter and May for counsel.
Advising AbbVie on Friday’s proposal are Herbert Smith Freehills; Skadden, Arps, Slate, Meagher & Flom; and Sullivan & Cromwell.
THE BIG PICTURE
At $54.8 billion, this deal is the largest-ever corporate inversion—a process where a U.S. company relocates overseas in order to lower its tax obligations. In addition to benefiting from a lower corporate tax rate in the U.K., where Shire is incorporated, AbbVie would no longer be required to pay U.S. taxes on income earned abroad—a benefit that can yield huge savings.
AbbVie said Friday that the transaction would reduce its effective tax rate to 13 percent by 2016, far less than the 22 percent it currently pays. In addition, the company said the deal would provide it with “access to its global cash flows.”
AbbVie, which was formerly the research branch of Abbott Laboratories before its $54.4 billion spinoff in 2013, is the latest pharmaceutical company to invert. Medtronic announced in June that it was purchasing Covidien for $42.9 billion in a bid to move to Ireland. That deal followed a failed attempt in May by Pfizer to purchase AstraZeneca for $119 billion—a move that would have allowed Pfizer to relocate to the U.K.
Shire itself chose to abandon its British headquarters in 2008 to enjoy Ireland’s lower tax rate and tax-free treatment of patent royalties, although it remained incorporated in the U.K. Once the merger with AbbVie is completed, the combined company’s tax domicile will return to the U.K.; however, its headquarters will be in Chicago.
Aside from the potential inversion benefits, AbbVie said the deal with Shire would bring together complementary product offerings, and that Shire would stand to benefit from its resources and scale, including AbbVie’s broad international network of over 170 countries—more than three times the number of countries in which Shire sells its products.
The deal process was anything but straightforward. AbbVie presented its first unsolicited offer to Shire on May 6. After it was rebuffed by Shire’s board of directors, AbbVie revised its offer twice more, but none was accepted.
Chudd said he became involved in the deal shortly after Shire initially heard from AbbVie in May. He said that none of the three proposals gave shareholders the level of value that Shire believed it could achieve by remaining independent.
“It was easy at that range, because we felt that the standalone value was significantly worth more than the value of those offers,” he said.
All of the proposed bids were handled privately until press speculation about a deal surfaced in mid-June. This led AbbVie to publicly acknowledge on June 25 its third bid for Shire, which had been rejected.
Shire’s board of directors criticized the first three offers for undervaluing the company and not adequately considering its growth potential. The board also expressed concern about “execution risks associated with the proposed inversion structure.”
Undeterred, AbbVie announced last week that it would sweeten its offer to 22.44 pounds ($38.34) in cash and 0.8568 in AbbVie shares for each Shire share. This offer, Chudd said, was the first one that merited serious engagement over the possibility of reaching a deal.
After numerous exchanges that ensued during the weekend, Shire announced last Monday that both sides had come to an agreement over the price.
But the deal was not finished, as both sides continued to express differences over a several of deal-related conditions. One of the major sources of tension, Chudd said, was the inequality caused by the U.K. Takeover Code, which doesn’t include any provisions through which Shire would have to be bound to the proposed transaction before its finalization. As a result, Shire can back out of the deal in the next few months without penalty.
AbbVie, however, can be bound to the transaction, a condition that Chudd said Shire was pushing for and that AbbVie initially resisted, given Shire’s ability to walk away from the deal without any repercussions.
“There was a lot of talk about how do you structure a deal in a way where AbbVie is bound to proceed with this transaction while at the same time Shire is in a unique position to change its mind anytime,” Chudd said.
Ultimately, AbbVie agreed to reimburse at least $500 million of Shire’s transaction costs if its shareholders were to reject the offer, and to pay a breakup fee worth up to 3 percent of the deal’s value if the transaction were to fall apart due to antitrust reasons, or if AbbVie’s shareholders were to reject the offer following a negative recommendation by AbbVie’s board.
Both companies had to race up against a tight deadline: Under U.K. law, AbbVie had until July 18 to make a formal offer for Shire. Chudd said the deal’s finalization kept him awake for most of Wednesday night and all of Thursday night.
The deal must still be approved by regulators and shareholders from both companies. AbbVie said the deal is expected to close by the end of the year.
Chudd has worked on numerous transactions for Shire since joining Davis Polk, leading the company’s deals since he became a partner at the firm in 2011. He advised Shire on its $4.2 billion acquisition of rare-disease drugmaker ViroPharma Inc., announced last year.
With his longtime client having agreed to join AbbVie, Chudd described the day as a “bittersweet” one.
“I very much enjoyed working with Shire,” he said. “It was great for me professionally.”