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Is Shire PLC A Buy After AbbVie Inc Withdraws Takeover Offer?

shireUS pharma firm AbbVie Inc (NYSE: ABBV.US) has today officially withdrawn its takeover offer for Shire (LSE: SHP) (NASDAQ: SHPG.US), proving once and for all that tax benefits were at the heart of this failed deal.

But investors expecting Shire’s share price to slump lower when markets opened this morning were disappointed (or maybe relieved) — more than anything else, markets hate uncertainty, and today’s news brings an end to the uncertainty we’ve seen over recent weeks.

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Better still, the failed deal comes with an added sweetener for Shire, in the form of a $1.635 billion break fee from AbbVie. That’s equivalent to around 172p per share, which AbbVie must pay Shire by 5pm today, 21 October.

Shareholder payout?

There’s no word yet from Shire on how it expects to spend this windfall.

I’d expect some of it to be used to mop up the vast legal and banking expenses the firm is likely to have incurred while negotiating with AbbVie, but it’s possible that the remainder may be returned to shareholders in the form of a buyback or special dividend.

Is Shire a buy?

It’s been a rollercoaster year for Shire shareholders, but it’s worth noting that the firm’s shares are, as I write, still 35% higher than they were at the start of 2014. That’s not a bad result, against a wider market that’s slumped nearly 7%.

Existing shareholders have the same choice they’ve always had — stay on board for the ride or lock in a healthy capital gain. However, for the first time since July, in my view, buying shares in Shire is now a realistic option for new investors.

Shire now trades on a 2014 forecast P/E of 19, and a 2015 forecast P/E of 17.4.

The firm’s prospective dividend yield remains negligible, at around 0.5%, but it’s worth noting that Shire’s valuation doesn’t look that pricey when compared to those of GlaxoSmithKline and AstraZeneca, neither of which are expected to deliver such strong earnings growth next year:

Company 2015 forecast P/E
Shire 17.4
AstraZeneca 15.6
GlaxoSmithKline 14.3

Shire has other advantages, too. Net gearing of just 15% is lower than AstraZeneca, and massively less than the debt-fuelled behemoth which is GlaxoSmithKline.

Shire’s strong balance sheet means that future growth should translate directly into earnings growth. There’s also the outside possibility that the firm could once again become a takeover target, at some point in the next few years.

I believe Shire is now an interesting buying opportunity for growth investors, and is well worth a closer look at today’s price.

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Roland Head owns shares in GlaxoSmithKline. 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.

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