Merger would combine two of the industry’s largest players.
On Tuesday, AbbVie (ABBV) announced a plan to buy Allergan PLC for about $63 billion. Allergan is best known as the manufacturer of Botox and other beauty-related drugs, where it has a sizeable amount of market share.
The offer for Allergan came in at $188 per share in a mix of cash and stock, a 45 percent premium over where Allergan shares closed on Monday. Shares had already been rallying on the rumor that Allergan was looking to unlock value by breaking up the company.
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Shares had already been rallying on the rumor that Allergan was looking to unlock value by breaking up the company. The deal will be subject to regulatory approval, given the size of both companies as well as the combined entity.
Both companies have traded at much higher prices in the past. Allergan shares have once topped $300, and AbbVie shares have traded north of $115. The current dour outlook for the pharma space and valuations as a result may likely spur some other mergers in the sector as well.
Action to take: With shares of AbbVie down over 14 percent on Tuesday given the news, current prices look like an excellent long-term entry point. The combined entity will have a broader mix of drugs across a variety of sectors, and shares have a dividend yield closing in on 5.5 percent. If the deal doesn’t go through, there could also be a quick bounce in shares.