Markets sold off shares of AbbVie (NYSE:ABBV) after the company announced it would buy Allergan (NYSE:AGN) for a premium of around 40%. Analysts did not see the obvious business fit but management expects pre-tax synergies of over $2 billion. AbbVie sees two merged businesses to manage as Humira faces a patent cliff.
AbbVie expects 50% of the synergies will come from R&D. Around 10% comes from operations, plant rationalization, and cost improvements. A smaller percentage comes from SG&A.
Strategically, AbbVie has two businesses to manage: a portfolio of products and opportunities and cash flow for Humira until its patent expiry.
Products having critical launches and indication expansions are Imbruvica, Venclexta, Skyrizi, Orilissa, and Upadacitinib later this year. Humira’s cash flow will provide AbbVie the ability to pay down its debt related to the Allergan buyout.
It committed to cutting debt by $15 billion - $18 billion by the end of 2021. Deleveraging will continue through 2023. All the while, management is committed to its dividend, which topped over 6% when the stock fell to $65. Shares rebounded back to $72.72 on June 28 but are still off from the ~$79 before the buyout announcement.
Your Takeaway
Analysts have an $80.57 price target on AbbVie and most call the stock a 'hold.' As the buyout closes, hold the stock to collect a solid dividend.
Disclosure: Author owns shares of AbbVie.
