AbbVie’s board recommends shareholders nix Shire tax inversion deal
The board of directors of Illinois drug maker AbbVie Inc. has recommended shareholders vote against the acquisition of European rival Shire, saying recent changes to U.S. tax rules eliminated some of the financial benefits of the $52-billion deal.
The decision late Wednesday likely puts an end to one of the most high-profile proposed inversions, in which a U.S. company buys a smaller foreign firm in a lower-tax nation and reincorporates there to save money.
The collapse of the deal would be a victory for the Obama administration, which made technical revisions to tax rules last month to try to curb a wave of inversions that threaten to erode the U.S. tax base.
“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,” said Richard Gonzalez, AbbVie’s chief executive and board chairman.
Shire, based in Dublin, Ireland, said Thursday its board “was considering the current situation and a further announcement will be made in due course.”
AbbVie will have to pay Shire a $1.6-billion breakup fee if the deal falls through.
AbbVie said late Tuesday that it was reconsidering the purchase, causing Shire stock to tumble about 22% Wednesday. AbbVie shares fell 0.9%.
Shire shares were down nearly 10% more in trading in London on Thursday.
When the deal was announced in July, Gonzalez said it was not being done just for the tax benefit.
And in an email to Shire employees last month -- a week after the Treasury Department unveiled the anti-inversion tax changes -- he expressed optimism the deal remained on track.
Still, AbbVie said the deal would have reduced its overall effective tax rate from 22.6% last year to 13% in 2016.
AbbVie planned to reincorporate on the British isle of Jersey, where Shire’s is incorporated for tax purposes. Jersey has no corporate income tax.
The U.S. tax corporate tax rate is 35%, the highest among the world’s most advanced economies.
Democrats and Republicans both want the rate lowered by eliminating some tax loopholes, but have not been able to agree on how to do it.
Meanwhile American firms, particularly in the pharmaceutical industry, have sought inversion deals to escape the high U.S. tax rate.
With bills to limit inversions stalled in Congress, the Obama administration took executive action last month to make the deals less financially appealing.
The Treasury Department eliminated some techniques, including so-called hopscotch loans that American companies with headquarters abroad use to gain access to foreign earnings without paying U.S. taxes on them.
AbbVie said its board assessed the impact of “Treasury’s unilateral changes to
the tax rules” and determined they “introduced an unacceptable level of uncertainty” to the Shire deal.
Among the concerns was that “the changes eliminated certain of the financial benefits of the transaction, most notably the ability to access current and future global cash flows in a tax-efficient manner as originally contemplated in the transaction,” AbbVie said.
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