AbbVie withdraws Shire bid following US tax changes

AbbVie’s board has recommended its stockholders vote against its proposed £31 billion buyout of Shire as a result of the tightening of US tax laws in September to deter so-called tax inversion deals.

Rumours about the possible collapse led to a 25 per cent fall in the value of Shire’s UK-listed shares yesterday and hedge funds, which now stand to lose $11 billion after buying up Shire stock over the summer, are considering legal action if the deal is abandoned.

AbbVie’s original offer was made on 18 July, but amendments to US tax rules by the Department of Treasury on 22 September had ‘introduced an unacceptable level of uncertainty’ to the transaction, said AbbVie’s board.

The announcement is a turnaround for the company, which assured staff that the merger would go ahead on 29 September.

In addition, the changes mean that if AbbVie bought Shire it would ‘no longer be able to access current and future global cash flows tax efficiently’, which would have been a key benefit of the deal. As a result, Shire’s implied value to AbbVie is now significantly lower.

AbbVie chairman and CEO Richard Gonzalez commented: “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.”

This suggests that gaining Shire’s fast-growing rare disease portfolio and profitable attention-deficit hyperactivity (ADHD) franchise is secondary to the tax benefits.

A clause in the agreement negotiated by Shire states that changes in US tax law are not grounds to cancel the takeover, and could mean Shire gets almost $1.64 billion if the transaction fails.

Other prospective deals that have fallen victim to the tax amendments include Salix’s merger with Cosmo and Auxilium’s rejection of QLT – and doubt must now be cast on whether Pfizer will renew its pursuit of AstraZeneca later in the year.

Links

AbbVie assures staff Shire merger to go ahead

AbbVie doubts Shire takeover in wake of tax changes

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