AbbVie Inc. and Shire agreed to terminate what would have been the biggest U.S. tax inversion after AbbVie pulled its support for the deal in the wake of proposed changes to U.S. rules governing the transactions.
North Chicago, Ill.-based AbbVie planned to buy Shire for an estimated $52 billion, then move the combined company’s legal address to Britain to lower its tax bill and access cash trapped overseas. After confirming that the deal was dead, the drug maker announced a $5-billion share buyback over the next several years and increased its quarterly dividend 17%, to 49 cents a share.
The deal is the largest casualty yet of rules announced last month by the U.S. Treasury Department to make tax-inversion deals more difficult. The new rules “reinterpreted long-standing tax principles in a uniquely selective manner designed specifically to destroy the financial benefits of these types of transactions,” AbbVie said Monday in a statement.
AbbVie’s “challenge now is in two years they lose their patent on one of the biggest blockbusters of all time, and they’ll have to replace that,” said Bill Smead, chief executive of Smead Capital Management, referring to the arthritis drug Humira.
AbbVie said it would pay Shire a breakup fee of $1.64 billion. Shire is based in Ireland for tax purposes but has executive offices in Basingstoke, England.
The takeover would have expanded AbbVie’s portfolio of medicines, particularly by gaining Shire’s treatments for attention deficit hyperactivity disorder.
In announcing AbbVie’s decision, Shire said it remained “well-positioned” to focus on the company’s previously announced growth strategy.
“While we are disappointed that the offer will not now complete, we continue to enjoy excellent prospects as we execute our plan to double Shire’s product sales to $10 billion by 2020,” Susan Kilsby, Shire’s chairwoman, said in a statement.
After the end of the deal was announced, Bloomberg News reported that billionaire John Paulson’s hedge fund firm was urging a merger between Irvine-based Allergan Inc., the maker of Botox, and Shire.
Paulson & Co. owned 1.9% of Allergan shares as of June 30, according to data compiled by Bloomberg.
Spokesmen for Paulson & Co. and Allergan declined to comment.