In July, Shire (LSE: SHP) (NASDAQ: SHPG.US) agreed a takeover deal worth £53.20 per share with US firm AbbVie, but Shire’s share price has fallen by 7% this week, to just £45.60.
Meanwhile, AstraZeneca (LSE: AZN) (NYSE: AZN.US) shares have fallen by 6% over the last month, as investors question how likely it is that Pfizer will make another bid for the firm.
In this article I’ll explain what’s happening at each firm, and what, if anything, you should do about it.
What’s wrong at Shire?
The final value of the AbbVie bid is dependent on AbbVie’s share price — the US firm’s proposal was for £24.44 of cash and 0.8960 AbbVie shares for each Shire share.
AbbVie’s share price has fallen by 5% since the deal was agreed, making the firm’s proposal worth £52.42. However, that’s not the only problem.
Firstly, growing US opposition to tax inversion deals could result in legal opposition to takeover of Shire, or even trigger a revolt by AbbVie’s shareholders, who have yet to approve the deal.
Secondly, the AbbVie proposal contains a clause stating that if AbbVie’s share price falls, the minimum acceptable value per Shire share is just £46.26 — only slightly above Shire’s current share price.
What about AstraZeneca?
Pfizer’s attempt to negotiate a tax inversion takeover deal with AstraZeneca failed, but the US firm will be able to make a new offer from November 26 onwards, with informal discussions possible from August 26, under UK Takeover Panel rules.
Many investors are expecting Pfizer to try again, given that Pfizer chief Ian Read’s recently said that his firm is still “aggressively” looking for a tax inversion opportunity.
However, in my view, AstraZeneca’s high price tag, combined with growing US political opposition to tax inversion, may mean that the time for a deal has passed.
If Pfizer doesn’t come back to the negotiating table, AstraZeneca share price could return to its pre-bid level of around £38.
What should shareholders do?
Ultimately, it’s your decision. For AstraZeneca, I would hold — the firm is just as attractive as it was before the Pfizer bid, and continues to offer a decent income.
At Shire, the decision is tougher. Although I suspect the AbbVie deal will be approved, shareholders have a lot to lose if it fails, as Shire’s shares are currently 60% higher than they were at the start of the year.