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What's causing Allergan's stock to soar on Tuesday?


Grace A

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Shares of Allergan Plc. (NYSE: AGN) are soaring to seven-month highs on Tuesday after pharma major AbbVie Inc. (NYSE: ABBV), a spin-off from Abbott Laboratories said it would buy the Botox-maker for about $63bn in a cash and stock deal. Under the terms of the agreement, shareholders of Allergan will receive 0.8660 AbbVie shares for each Allergan share in addition to $120 in cash per share. Based on Monday’s closing price of $129.57, AbbVie’s offer comes at a premium of 45.3% or $188.24 apiece.

As of 3rd May, Allergan had a total of 327.8 million outstanding shares, representing a market cap of $61.71bn. While the deal is expected to add 10% to the adjusted earnings per share of AbbVie in the first year due to synergies and cost savings to the extent of $2bn, Allergan’s popular Botox product will come under the same banner as AbbVie’s cancer and arthritis drugs.

Shares of Allergan have plunged close to 50% in the last two years due to eroding investor confidence as mounting competition and failure in securing drugs from the clinical stage to the markets have impacted earnings, even as the company was looking for potential buyers to exit a part or the entire business.

Allergen is trading with gains of more than 31% an hour before US markets open for trading on Tuesday while shares of AbbVie are down more than 8% on fears that the drugmaker could be overpaying for the struggling Allergan.

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