What will Shire Pharmaceuticals do next?

Shire Pharmaceuticals will reject Abbvie's (ABBV) latest offer and the Americans must cough more than 5,500p per Shire share to get the Irish drugmaker to the table. That was the view of broker Panmure Gordon on Wednesday morning. The City, however, has serious doubts and Shire's share price, down at 4,463p, continues to factor in failure.

Yesterday, Abbvie returned with a fourth and revised proposal worth a little over 5,100p - 2,244p in cash and 0.8568 Abbvie shares. That's 11% more than last time, and, crucially, includes an extra £2 billion of cash.

But a day later, and with Abbvie forced to retract a statement which implied it had received written commitments of support from Shire shareholders, Panmure has crunched the numbers and is more confident on Shire's prospects than others.

"We have undertaken some sensitivity analysis on a number of inputs to try and guesstimate the level at which Abbvie may be prepared to bid," explains analyst Savvas Neophytou. He now expects synergies of around $565 million (capitalised $6.8 billion) and possible tax inversion benefits of $315 million (capitalised $3.8 billion) in 2016.

In its defence document, Shire forecast $10 billion (£5.84 billion) of revenue in 2020 and an improving EBITDA (earnings before interest, taxes, depreciation, and amortisation) multiple. Put those through the computer and Panmure comes up with fair value of between 5,294p and 5,765p.

And it's interesting to hear Mr Neophytou raise the point that many of Shire's shareholders are US funds, suggesting that they, unlike their UK counterparts, would not object to inheriting shares in Abbvie as part of any deal.

Remember, the "put up or shut up" deadline of 18 July is only ten days away. Shire shares are up by three-quarters since April when news broke of Pfizer's doomed approach for AstraZeneca, and by almost half since Abbvie's initial overtures.

For Shire shareholders the situation very much resembles a TV game show. Sell now near record highs, or sit it out in the hope that Shire agrees either to the new deal or something even better.

Currently, Shire trades at a 12% discount to the proposal price, worth over 600p per share if the deal happens. Would you kick yourself for missing out on that extra cash if Shire said yes, or would you rather sleep easy tonight?

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.