Shires(LSE: SHP)shares are falling once again today,after AbbVie announced that its board of directors was recommending companys shareholders vote against the takeover of Shire.
This news comes after AbbVies announcement yesterday that the company was reconsidering its offer to acquire Shire, after taking into account theUS Treasurys new rules on tax inversion deals. So, now that AbbVies management has withdrawn its recommendation to vote for the merger, it looks as if the deal is off the table.
Shires management has issued a press release this morning stating that it is assessing thecurrent situation and a furtherannouncement will be made in due course.
Further to fall
Following these developments, its likely that the valuations of both Shire and its larger peer,AstraZeneca(LSE: AZN), could fall as the two groups are no longer attractive takeover targets.
Indeed, Astrasshares have been held above the key 4,000p level for much of this year as investors speculate that global pharmaceutical giantPfizerwill come back and make a new, higher offer for the company.
But now, with the possibility of a new offer fading, Astras shares look overpriced.For example, Astra currently trades at a forward P/E of 15.9, compared to the pharmaceutical & biotech average sector P/E of 13.1. As the prospects of a bid disappear, Astras shares could fall by around 17% to 3,524p, which would bring them into line with the sectors average valuation.
In addition, now AbbVie is no longer courting Shire, Shires shares could also fall to a valuation thats more in line with the rest of the sector. Unfortunately, Shire is currentlytrading at one of the highest valuations in thepharmaceutical & biotech sector the company trades at a forward P/E of 20.3 so the groupcould see its share price fall as low as 2,500p now a deal is off the table.
Still, while Shire and Astra might see their share prices fall in the short-term, over the longer term the two companies have a bright future.
For example, Shire should receive a break-up fee of around $1.6bn from AbbVie if the takeover collapses, which will give the company a large acquisition war chest. Shire has built itself up to where it is today by acquiring smaller competitors with outstanding products, further deals could now be on the cards.
Meanwhile, Astra is priming itself for growth and is currently developing several cancer treatments. These treatments have been touted as game-chaining products for the pharmaceutical industry and management believes that these products will help the company double sales by 2023.
Overall, even though Shire and Astra are no longer acquisition targets, they remain great long-term investments due to their defensive nature and plans for growth.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.