Portfolio Update…AGN 6.25.19

At the top of the list of a portfolio manager’s and stock shareholder’s wish list is to wake up to the news of a buyout.  That’s how my day began today – – with the news of Allergan being acquired by AbbVie Pharmaceutical.  At today’s opening bell Allergan shot up nearly 30%.   AbbVie is paying about $80 billion combined for Alleragan in the stock, cash and debt deal.  Even after  today’s sharp increase in Allergan’s stock price, it is still a considerable distance from the takeover price, which values Allergan at $188.24 a share.  As you know, Allergan (AGN) is a core position in BAM’s Global Opportunities portfolio.

Under the terms of the deal, Allergan shareholders will receive 0.8660 AbbVie shares and $120.30 in cash for each Allergan share they hold, AbbVie said in a news release this morning.  While the takeover offer values Allergan at a 45% premium over yesterday’s share price, some analysts think Allergan may sell for closer to $200.

Allergan is best known as a leader in medical aesthetics.  In 2018, its medical aesthetics unit generated $2.77 billion in sales, growing more than 13%. Botox, as a cosmetic treatment for frown lines, brought in $907.3 million of that.  However, Botox has seen more success as a therapeutic.  It’s also used in migraine prevention and to treat excessive sweating. Last year, Botox therapeutic sales were roughly $1.64 billion.  Allergan also has an eye care business which includes chronic dry eye treatment Restasis.

The deal is expected to close in early 2020. AbbVie estimates pretax synergies and other cost reductions of at least $2 billion in year three following the deal’s resolution. The pharmaceutical company expects to optimize research and development, and sales and marketing.  I think this is a big win for AbbVie.  Allergan is a “cash cow”, and should become a cornerstone of AbbVie’s future valuation.  In 2018, the two pharmaceutical companies generated nearly $40 billion in sales. Combined, their market valuation would be $153.3 billion, putting the new pharmaceutical company just behind Novartis and Merck.

John