New tax measures announced by the US Department of Treasury have caused AbbVie to rethink its deal to take over Ireland-based Shire.
AbbVie said its board plans to meet next week in order to discuss the company’s $55bn bid for Shire, which was partly influenced by the prospect of having a base in the UK island of Jersey, which has a much lower corporate tax rate compared to AbbVie’s US home.
However, this plan has been somewhat spoiled by an announcement by the US Government last month to change the country’s tax regulations in order to discourage such ‘tax inversion’ deals, which have grown in popularity over the past few years as companies look to cut costs.
Tax inversion deals have become particularly prevalent in the pharma industry, with companies like Pfizer, Mylan, Endo and Actavis all proposing or confirming deals in order to gain headquarters in a European country with a lower corporate tax rate. Outside healthcare, large companies like Burger King and cable company Liberty Global have also adopted similar measures.
These deals have criticised by US politicians as being ‘unpatriotic’ and President Barack Obama has said he will halt their uptake.
Recent US tax inversion deals
| Year | Acquirer | Target | New company tax domicile |
| 2010 | Valeant | Biovail | Canada |
| 2011 | Alkermes | Elan | Ireland |
| 2012 | Jazz | Azur | Ireland |
| 2013 | Liberty Global | Virgin Media | UK |
| 2013 | Actavis | Warner Chilcott | Ireland |
| 2013 | Perrigo | Elan | Ireland |
| 2014 | Endo | Paladin | Ireland |
| 2014 | Theravance Biopharma | Cayman Islands | |
| 2014 | Horizon | Vidarg | Ireland |
| Pending | Medtronic | Covidien | Ireland |
| Pending | Mylan | Abbott – generics | Netherlands |
| Pending | AbbVie | Shire | Jersey |
| Pending | Burger King | Tim Hortons | Canada |
Plans to achieve this include new rules that make it impossible for companies to make intra-company loans to the new overseas parent and that prevent inverted companies from restructuring a foreign subsidiary in order to access its earnings tax-free.
As for the deal with Shire, AbbVie said its board of directors has “not withdrawn or modified its recommendation” to stockholders, and will discuss options at the meeting on October 20.
AbbVie confirmed that if it was to withdraw or modify its recommendation, a deal could still be on the cards as “it would not cause a lapse of AbbVie’s offer or terminate the co-operation agreement”.
Following the board meeting AbbVie must convene an additional meeting with stockholders to consider the merger with Shire. The offer will only lapse if the company’s stockholders do not adopt the agreement.
Commenting on the announcement Dr Mick Cooper, an analyst at Edison Investment Research, said the news doesn’t mean the end of the merger.
“Such an outcome is understandable given the undoubted tax benefits some suitors would accrue, however we believe acquisitions that have solid commercial rationale underpinning them will proceed largely as proposed,” he said.