AbbVie reconsiders Shire deal after U.S. move to curb tax inversions

Illinois drugmaker AbbVie Inc. said it would reconsider the planned purchase of European rival Shire after the Obama administration recently changed U.S. tax laws to make it less financially appealing for companies to restructure abroad.

The $52-billion deal, announced in July, is one of the highest-profile inversions, a controversial maneuver in which a U.S. company buys a smaller rival in a lower-tax nation and moves its headquarters there to pay less taxes.

The tactic has become more common as companies try to avoid paying the U.S. 35% corporate tax rate, the highest among the world’s most advanced economies.

Faced with a growing number of inversions, Treasury Secretary Jacob J. Lew last month made some technical revisions to the tax code to “significantly diminish the ability of inverted companies to escape U.S. taxation.”

The Treasury Department eliminated some techniques, such as so-called hopscotch loans that U.S. companies with headquarters abroad use to gain tax-free access to some earnings.

Lew said at the time that for some firms the changes would “mean that inversions no longer make economic sense.”

AbbVie apparently is concerned that is the case with its plan to acquire Shire, which would create a pharmaceutical giant.

AbbVie said late Tuesday its board of directors would reconsider the recommendation to its shareholders to approve the deal for Shire.

“AbbVie’s board will consider, among other things, the impact of the U.S. Department of Treasury’s proposed unilateral changes to the tax regulations...including the impact to the fundamental financial benefits of the transaction,” the company said.

AbbVie notified Shire’s board that it was reconsidering the deal. AbbVie’s board plans to meet Monday to discuss it.

Under the deal, the new company would have its headquarters for tax purposes on the British island of Jersey, a well-known tax haven.

Shire, based in in Dublin, Ireland, is incorporated in Jersey, which does not tax corporate income.

AbbVie said the move would reduce its overall effective tax rate from 22.6% last year to 13% in 2016. The company, based in North Chicago, Ill., would retain its U.S. presence.

Shire said Wednesday that its board believes AbbVie should go ahead with the acquisition. Shire noted that under the terms of the proposed deal, AbbVie would have to pay a $1.6-billion break-up fee if it backs ouit.

Shire shares were down about 22% in trading in London on Wednesday. AbbVie shares were down about 2% in early trading.

The Obama administration has been highly critical of inversions, saying U.S. companies were avoiding paying their fair share for roads and other infrastructure as well as federally funded research and protection of intellectual property rights.

Shortly before the AbbVie/Shire deal was announced, Lew called for companies to show “economic patriotism” and not try to shirk their U.S. tax bills.

But those calls did not stop companies from pursuing inversions.

In August, Miami-based Burger King Worldwide Inc. announced it would reincorporate in Canada after the purchase of Tim Hortons Inc.

Burger King said the decision to put the combined firm’s headquarters in Canada was not driven by the nation’s lower tax rate but because it would be the largest market.

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