Allergan rows back on talk of Shire bid after shares drop

US pharma giant Allergan has pulled back from tabling a bid for UK-listed rival Shire just hours after first indicating its possible interest.

Invoking requirements under the UK Takeover Code, the Dublin-based outfit said it did not intend to make an offer, adding that it was continuing to examine the "full range" of strategic options at its disposal, including divestitures, combinations and acquisitions.

Initial reports that it might wade into the fray for Shire, earlier in the session, had seen the company's share price dive by just under 9%.

Shire shares were down 4.4% to below 3,800p on Friday afternoon, compared to Takeda's shares and cash offer of 4,650p.

"Shire’s rejection of Takeda’s bid likely came as no surprise to Takeda," said Credit Suisse analysts, and that Shire is probably now prepared to reconsider Takeda’s pitch.

"With Allergan out of the picture, Takeda and Shire say they are continuing discussions regarding a potential offer, and we now see an increased likelihood of the pair reaching an agreement."

Based on recent takeover multiples, Societe Generale suggested Takeda could raise its cash component by another £9 per Shire share. "But we suspect that the Shire share price discounts otherwise because of Takeda’s credit rating and/or dividend commitments."

Dismissing other potential suitors, as neither Novartis nor AbbVie are felt to "strategically need" Shire and that Pfizer is "no longer interested in transformational M&A", while Celgene and Allergan would have to raise so much new equity as to "excessively dilute" their earnings.

UBS think "it is more likely than not a deal gets done, but who precisely does the deal remains murky" as Takeda could increase the cash component of its offer but it will be "a real financial stretch".

"We think Shire investors are keen to avoid the regret they might feel if they don't sell and then the stock does badly. Regret avoidance can be a powerful motivator."