Business

AbbVie to Buy Shire for $54.8 billion in biggest inversion

Pharmaceutical IndustryPoliticsLaws and LegislationRepublic of IrelandCredit RatingsJack LewU.S. Congress
Abbvie's deal for Shire is the latest example of companies taking foreign addresses to cut taxes

AbbVie Inc. is buying Shire for nearly $55 billion, the largest deal in a year filled with merger and acquisition activity, and the latest example of companies taking foreign addresses to cut taxes.

The deal will allow North Chicago-based pharmaceutical giant Abbvie to move its corporate tax headquarters to Britain, a maneuver that would reduce its tax rate substantially.

Shire, based in Ireland but managed in Boston and listed on the London Stock Exchange, had resisted at least four previous takeover overtures by AbbVie, driving the price of the transaction up 53 percent higher than Shire's closing price on May 2, the day before AbbVie made its first offer.

AbbVie, which was spun off from Abbott Laboratories in January 2013, will retain its operational headquarters in North Chicago.

The deal, expected to close in the fourth quarter, still requires approval from both companies' shareholders and regulators.

"The combination of AbbVie and Shire is attractive for shareholders of both companies," said Richard Gonzalez, AbbVie's chief executive officer, in a statement.

The takeover, he said, will "provide us with enhanced access to cash that we can use to expand our portfolio and fund M&A to supplement organic growth."

Shire chairwoman Susan Kilsby and board member Dominic Blakemore will join the new AbbVie board.

Fleming Ornskov, Shire's chief executive, will remain with the company after the deal closes, leading the creation of a rare diseases unit. He will report to Gonzalez.

News of the deal comes as political pressure from the Obama administration and some members of Congress, who are seeking to halt the practice known as inversion.

Treasury Secretary Jacob J. Lew on Tuesday sent a letter to congressional leaders urging them to take immediate action to stop U.S. companies from reincorporating abroad, retroactive to May 2014.

"We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes," he said.

A bipartisan push for major tax legislation has stalled in Congress and it's unclear if Lew's proposal will gain traction.

Sen. Orrin Hatch, a Utah Republican and the ranking member of the Senate Finance Committee, responded in a letter to Lew on Thursday, saying while he shares the secretary's concerns about corporate inversions, the proposal to halt deals retroactively goes too far.

"That said, there may be steps Congress can take, short of comprehensive tax reform, to address corporate inversions and related issues" that are "less punitive and restrictive to business," Hatch said, in the letter.

The announcement of the AbbVie-Shire deal also comes on the final day the two companies had to reach an agreement under British takeover rules. If the two sides were unable to agree to terms by Friday, AbbVie would have been forced to walk away for as long as six months.

AbbVie's fifth offer, of about $91 a share, gained the tentative support of Shire's board earlier in the week. The two sides had been working since Sunday to refine other parts of the takeover.

Shire would augment AbbVie's line of treatments, which is greatly dependent on the world's largest-selling drug, the multipurpose injectable Humira. That drug accounted for about 58 percent of the company's first-quarter sales, and it's on track to eclipse $10 billion in annual sales.

Shire specializes in medicines for attention deficit hyperactivity disorder, or ADHD, which account for about 40 percent of its sales. The firm also sells drugs to treat rare genetic disorders and is building up a portfolio of treatments in ophthalmology and other specialty disease areas.

In its proposal, AbbVie said it planned to create a U.S.-listed holding company but change its domicile to Britain. Shire is publicly traded in Britain.

The transaction is expected to be taxable to U.S.-based AbbVie shareholders.

Following the transaction, Shire shareholders are expected to hold about 25 percent of AbbVie shares.

AbbVie expects the acquisition will add $1 per share of profits by 2020. The company also said it will "maintain a strong commitment to a growing dividend and to implement a significant share repurchase program," methods of cash deployment investors expect from the drugmaker.

AbbVie's offer is the latest in a spate of pharma industry tie-ups, fueled by a rush of American companies seeking to take advantage of a tax loophole that allows them to book corporate taxes at lower rates overseas in countries like Ireland, Switzerland and Britain.

The latest deal involved its former parent, Abbott Laboratories, which announced Monday that it would sell its developed-market cache of generic and specialty drugs to Mylan Inc. for $5.3 billion. Under the structure of that deal, Mylan would reincorporate to the Netherlands.

Deerfield-based Walgreen Co., the nation's largest drugstore chain, also is considering a move to re-domicile in Europe after it completes its expected takeover of Switzerland-based Alliance Boots GmbH, largely to take advantage of lower taxes.

pfrost@tribune.com
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Copyright © 2014, Los Angeles Times
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Pharmaceutical IndustryPoliticsLaws and LegislationRepublic of IrelandCredit RatingsJack LewU.S. Congress
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