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AbbVie board recommends dropping Shire deal

Tells stakeholders to vote against merger in light of new rules on corporate tax
Shire AbbVie logos

AbbVie's board today recommended shareholders in the US pharma company vote against its proposed merger with Shire Pharmaceuticals due to changes in US tax regulation.

AbbVie announced yesterday that its board of directors was to discuss the $55bn deal in light of new legislation introduced by the US Department of Treasury to curb 'tax inversion' deals, whereby a US firm uses an acquisition to establish a base in another country in order to reduce its corporate tax bill.

However, new tax rules launched last month have made the deal less appealing for AbbVie, which issued a statement saying the changes “introduced an unacceptable level of uncertainty to the transaction”.

The new legislation includes rules that make it impossible for companies to make intra-company loans to the new overseas parent and to prevent inverted companies from restructuring a foreign subsidiary in order to access its earnings tax-free.

AbbVie's CEO Richard Gonzalez said: “Although the strategic rationale of combining our two companies remains strong, the agreed upon valuation is no longer supported as a result of the changes to the tax rules and we did not believe it was in the best interests of our stockholders to proceed.”

Responding to the announcement Shire issued a short statement saying the company is “considering the current situation and a further announcement will be made in due course”.

If AbbVie's shareholders do vote against the merger the company will have to pay a 'break fee' of around $1.6bn to Shire - a situation that AbbVie would seem to find preferable than the financial risk of going ahead with the deal.

The deadline for a shareholder meeting to occur is December 14, 2014. If a vote is not held by then the deal will be abandoned regardless.

The announcement is a victory for the US Government, which has been concerned by the rise in popularity of tax inversion deals and their impact on the country's corporate tax bill.

Tax reductions have been a driving force in several major pharma bids over the past couple of years, including the AbbVie/Shire deal. The companies intended to establish a joint base in the tax haven of Jersey, part of the British Isles, where Shire is already incorporated.

Article by
Thomas Meek

16th October 2014

From: Research, Sales

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