Hi everyone.
I finally got around to trying to figure out -- not very successfully, I must admit -- what's the deal with AbbVie.
With Valeant, I understood the point: Valeant was a fraud (readers of this board know I maintained this view long before the market figured it out too). They planned to defraud Allergan shareholders by giving them a small cash payment and a lot of near-worthless (as we later found out) Valeant stocks in exchange for a profitable company. They would have fired most employees to minimize expenses and got as much as they could, as fast as they could, out of already existing sales momentum before the products would've inevitably collapsed for lack of ongoing support. Fortunately, the Allergan board was resolute enough and astute enough to figure it out and successfully defended.
With Actavis, I also got the point: It was an inversion. A gimmick to game the taxing system into moving the company base outside the US so as to avoid the overreach of US corporate taxes (The US taxes worldwide profits, every other country only taxes profits made in that country; therefore companies with significant non-US sales can reduce their taxes by expatriating themselves). I am not at all a fan of gaming the tax (or any legal) system, but it was perfectly legal and in the interest of the shareholders. Inversions were quite popular then, and the size of the deals were getting too large for the taxing authorities to ignore. This was one of the last big deal before the taxing authorities changed the rules and largely ended inversions.
With Pfizer, I also got it, sort of: It was meant to be another inversion, and a much bigger one (if competed, it would have been the biggest inversion of all times, more than 3 times larger that the largest completed inversion ever). At the time, I thought that there had to be a better (value creation) reason to the deal, because if it's only about inversion, no way the taxing authorities would just let it go unchallenged. I was waiting for the legitimate reason to be detailed. There was no legitimate reason, and the taxing authorities (to the surprise of the market, but not to the surprise of readers of this board) changed the rules, cracked down on inversions in general, and the deal collapsed.
This time, with AbbVie, I just plain don't get it. I don't see any fraud -- AbbVie is a legitimate company in every respect I can judge. I don't see gaming the tax, patent, regulatory, or any other legal framework (all of which post-Actavis Allergan has been trying at various points). But, I am also not seeing any real synergies or other value creation process. The addressed markets and R&D are too different -- this is not a situation where the sales or scientists of the two companies could somehow do better when combined (or do equally with less resources). So, where is the value creation? The question is not if AbbVie "needs" Allergan to grow once the Humira patents expire or if Allergan is getting a good price (the questions that seem to obsess the analysts covering the transaction), but if the combined company can create more value than the two companies can separately. If not, then there is no price which is a win-win for both sets of shareholders. I do expect the deal to close, because none of the constituencies that matter (the two sets of shareholders, primarily; but also other relevant stakeholders like management, employees, and customers) are really opposed (ok, there are some unions and public interest groups that are whining, but they are not really very relevant constituencies); but I still don't see the purpose of this deal.
-- Hope everyone is doing great!
Dan.
PS: A bit of a personal update since last time here -- I left Farmers Insurance to join an Artificial Intelligence startup where I am the Chief Science Officer. Vicky left Sente to start her own startup, Flawless Canvas (If you want to know what she's up to, follow her instagram at www.instagram.com/vicky_vega_phd). And, as always, if you want to know more or get in touch, hit me on LinkedIn (or hit Vicky on instagram); I always accept requests from Allergan people.
