AbbVie’s $ 63 billion, mega-takeover agreement for Allergan took most of the industry by surprise when the two drugmakers dropped the news in late June. Turns out it’s easier to keep a corporate courtship under wraps when only two parties are involved.
The deal that turned into this year’s biggest M&A blockbuster began with a phone call between AbbVie CEO Richard Gonzalez and Allergan head Brent Saunders in March and ended three months later—with no other suitors—in a marriage.
According to an Allergan proxy filing outlining the deal’s background, the two companies’ flirtation began March 13, when Gonzalez rang Saunders for a discussion on “a variety of potential strategic opportunities” Allergan might be considering. At the time, Allergan was facing a dwindling stock price and investor agitation to split the company up to boost profits.
During the call, Gonzalez dropped a not-so-subtle hint he was interested, telling the Allergan CEO that AbbVie was open to a “strategic relationship” between the two.
Saunders was intrigued: The two met in person April 22 and Gonzalez—playing it coy—said AbbVie might be open to acquiring Allergan but did not make a proposal. Those hints were enough for Saunders, who told the Allergan board of directors May 1 about his discussions with Gonzalez.
Over the course of the next month—with check-ins to the Allergan board’s M&A Committee—Gonzalez and Saunders furtively rang one another, discussing the framework of a deal without a whisper of possible price, the proxy said.
On May 28, Saunders and Gonzalez once again met in person and had the conversation they had been waiting for. Gonzalez, moving quickly, said AbbVie was considering an acquisition price of $ 174 per Allergan share, a premium of 28% to 32% of the company’s share price. Saunders said he would take the proposition back to his board but admitted they would “unlikely to be interested in a transaction at that price.” Gonzalez, keeping the door ajar, said he wanted to keep the channel open.
After the two companies reached a mutual confidentiality agreement May 30, management teams met the following week to divulge each company’s structure, business strategy, pipeline and more. Meanwhile, Saunders and Gonzalez agreed to meet once more to discuss price.
On June 7, Gonzalez said AbbVie was upping its initial offer to $ 184 per share. Saunders, playing hard ball, asked for a higher price to take back to his board. The following day, Gonzalez reiterated his $ 184 per share proposal but hinted that AbbVie’s board could go as high as $ 186.
When the Allergan board met June 11, advisers from JP Morgan attempted to throw some cold water on the pairing, asking whether the board had considered another option beyond an acquisition and whether there were any other offers on the table. According to the proxy, AbbVie was the only suitor Allergan contacted.
After the meeting, on June 12, Gonzalez gave his final offer: $ 188 per share, a 45% premium, contingent on the AbbVie board’s approval June 19. Gonzalez also offered two seats on the joint company’s board to Saunders and another director.
On June 16, Saunders got the approval he wanted. The board unanimously agreed to move ahead on due diligence and credit applications for the deal, and AbbVie’s board followed suit between June 17 and June 20. Finally, after months of work, AbbVie and Allergan shook on it June 25, when the two companies executed a Transaction Agreement formalizing the deal.
In their unanimous recommendation for the deal, Allergan’s board “concluded that the uncertainties, risks and potentially negative factors relevant to the transaction were outweighed by the potential benefits that it expected Allergan and its shareholders would achieve as a result of the transaction.”
The deal was especially welcome for investors looking for a “welcome exit” from Allergan, RBC Capital Markets analyst Randall Stanicky said, noting that the drugmaker’s share price had dwindled in recent years.
For AbbVie, the deal represents a chance to grow after its megablockbuster fell over the patent cliff in Europe this year and faces a similar decline in the U.S. in 2023. Gonzalez is expected to helm the joint company after the merger.