By Michael Erman and Ankur Banerjee
(Reuters) - Drugmaker AbbVie Inc (NYSE:ABBV) said on Tuesday it would buy Botox-maker Allergan (NYSE:AGN) Plc for about $63 billion, grabbing control of the biggest name in medical aesthetics to help reduce its reliance on blockbuster arthritis treatment Humira.
AbbVie has been under pressure to diversify its portfolio as Humira, the world's best-selling drug, is already in competition with cheaper versions in Europe and faces expiration of its patents in 2023 in the United States, its most important market.
Humira, which brought in revenue of about $20 billion last year, reported the first fall in quarterly sales in years in the January-March period.
AbbVie CEO Richard Gonzalez said the company was well positioned to buy Allergan because of the massive amount of cash that Humira generates.
"Humira is buying the assets that replace it over the long term," said Gonzalez, who will lead the combined company and remain chairman and chief executive through 2023.
Allergan Chief Executive Officer Brent Saunders, who put together the current version of his company through a series of deals to roll up several pharmaceutical firms in 2014, will join AbbVie's board upon completion of the deal.
Saunders built his reputation as a dealmaker, but Allergan has struggled since Pfizer Inc (NYSE:PFE) walked away from a $160 billion deal in 2016. Allergan's shares have lost around half their value since then.
He has been under pressure over the last year to break up or sell the company, with activist investor David Tepper running a campaign to urge Allergan to hire an independent chairman.
Investors have also questioned Saunders' growth plans beyond acquisitions and the quality of the company's drug pipeline.
On a conference call, Gonzalez said the deal was not a pipeline-driven transaction, and AbbVie executives downplayed the role Allergan's experimental drugs would play in the combined company.
Shares of AbbVie have also languished, losing more than a third of their value from highs hit in January 2018 over concerns about competition to Humira.
The deal, which comes months after Bristol-Myers Squibb (NYSE:BMY) Co agreed to buy Celgene Corp (NASDAQ:CELG) in a $74 billion transaction, will redomicile Dublin-based Allergan to the United States.
AbbVie and Allergan senior management had been discussing a possible deal since late April, the companies said.
Allergan remains an industry leader in aesthetics, and is likely to be the cornerstone of AbbVie's valuation, SVB Leerink analyst Geoffrey Porges said in a note.
"This is yet another transaction driven by diversification, scale and low borrowing costs, rather than portfolio or top line synergies," Porges said.
Allergan shareholders will receive 0.8660 AbbVie shares and $120.30 in cash for each share held, for a total consideration of $188.24 per Allergan share, a premium of 45% to the stock's Monday close. Including debt, the deal values Allergan at $83 billion.
AbbVie shares were down 14% at $67.54, while Allergan's stock was up 27.60% at $165.13 in morning trading. Shares of other specialty pharmaceutical companies also moved higher.
Mylan (NASDAQ:MYL) NV, Bausch Health Co Inc and Teva Pharmaceutical (NYSE:TEVA) Ltd were all up 2% to 4%.
AbbVie's offer price is a far cry from Pfizer's all-stock offer for Allergan that valued the Ireland-based drugmaker at $363.63 per share in 2015.
AbbVie said it expects annual pretax savings and other cost reductions of at least $2 billion in its third year, after the deal closes in early 2020.
The transaction is expected to add 10% to adjusted earnings per share over the first full year following the close, the companies said.
The deal was a better-than-expected outcome for Allergan as investors and analysts were expecting a split, Cantor Fitzgerald analyst Louise Chen wrote in a note, adding that it is unlikely that anyone else will step in and bid for Allergan at this point.