AbbVie Takes on Debt to Buy Allergan

GuruFocus.com

On Wednesday, AbbVie Inc. (NYSE:ABBV), the manufacturer of rheumatoid arthritis treatment Humira, informed the market through PR Newswire that it will issue a corporate loan worth $30 billion in 10 different tranches of senior unsecured notes.

The first three tranches of notes are due from May 2021 to May 2023 and bear floating interest rates, while the other seven tranches, which are not due until 2050, carry interests rates of 2.15% to 4.25%. The closing of the offering is scheduled for Nov. 21.


Mainly, AbbVie Inc. will use the collected cash to fund part of the purchase of Allergan PLC (NYSE:AGN), which was valued by the two pharma companies at more than $60 billion (or $188.24 per share). For each share held, shareholders of Allergan will receive cash and shares of AbbVie.

Once the acquisition is completed, AbbVie will become a leading company in the profitable market for Botox and several popular eye treatments and will manage a portfolio of activities yielding an annual turnover of approximately $50 billion.

Allergan's portfolio, which also includes other cosmetic treatments and several remedies designed for the central nervous system and gastroenterology, has allowed the pharmaceutical company to achieve substantial growth in trailing 12-month revenue and operating cash flow in the past 5 years.

Allergan achieved regular distribution of quarterly dividends for almost 3 years and continuous increase since the date of the first payment on March 28, 2017.

Shareholders of the two drug giants are seeing the deal taking shape after first agreeing on it in June earlier this year. Following the news on the corporate loan pricing by AbbVie, shares of the two companies may move higher in the next days.

While Allergan has risen 36% so far this year to a share price of $181.96 at close on Tuesday, AbbVie has declined by 6% to close at a price of $86.44 per share.

AbbVie has a market capitalization of $127.83 billion, a price-earnings ratio of 39.83 versus the industry median of 20.48 and a price-sales ratio of 3.91 versus the industry median of 2.53. The stock has a forward dividend yield of 5.51% based on Tuesday's closing price and a quarterly dividend of $1.18 per common share to be paid on Feb. 14, 2020.

Allergan has a market capitalization of $59.73 billion, a price-earnings ratio of negative 6.5 versus the industry median of 20.48 and a price-sales ratio of 3.8 versus the industry median of 2.53. The stock has a forward dividend yield of 1.63% based on Tuesday's closing price and a quarterly dividend of 74 cents per common share to be paid on Dec. 13, 2019.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.