AbbVie Inc. (ABBV) shares fell more than 15% during Tuesday's session after The Wall Street Journal reported and the company confirmed that it's in the final stages of acquiring Allergan PLC (AGN) for $188.24 per share in a transaction worth about $63 billion. Management called it a "transformative" transaction that will have a "profound" impact on the company's growth story.
The company anticipates pre-tax synergies and other cost reductions of at least $2 billion by the third year along with significant operating cash flow that will support a debt reduction target of $15 billion to $18 billion by 2022. However, AbbVie investors remain a bit more skeptical, as evidenced by the significant pullback in the stock following the announcement.
Piper Jaffray analyst Christopher Raymond is skeptical of the deal at first glance but remains open to the added growth potential. At the same time, SVB Leerink analyst Marc Goodman suggested that Allergan could receive multiple bids given the historically low price. Wells Fargo analyst David Maris doesn't think another bid will arise but hasn't ruled out the possibility of an activist investor getting involved.
From a technical standpoint, the stock broke down from a long-term descending triangle to trendline support dating back to 2017. The relative strength index (RSI) fell to oversold levels of 18.89, but the moving average convergence divergence (MACD) experienced a bearish downturn. These indicators suggest that the stock could see some near-term consolidation, but the long-term trend remains bearish.
Traders should watch for some consolidation above trendline support at $64.50 over the coming sessions with upside limited by trendline resistance at around $74.75. If the stock breaks down from support, traders could see a move down to $60.80 – reaction highs from late 2016 and early 2017. If the stock breaks out higher, traders could see a breakout from the descending triangle, although that move appears unlikely given the bearish sentiment.
The author holds no position in the stock(s) mentioned except through passively managed index funds.