AbbVie-Shire deal effectively dead in the water
- The board of U.S. pharmaceutical giant AbbVie has recommended ditching a planned (and hotly-anticipated) $55 billion acquisition of Ireland-based Shire that would have shifted AbbVie's domicile to Ireland and cut its tax rate to just 13% by 2016. The board's recommendation effectively kills the deal.
- AbbVie will have to pay a hefty $1.6 billion penalty for backing out of the deal. Shire says that it is currently "weighing its options." The latter company's stock was down sharply on the news.
- Recently-announced regulations by the Treasury Department make it more difficult for U.S. companies to use inversion mergers to lower their tax base by considering certain foreign loans "U.S. property." The new rules also prohibit large pre-merger dividend sales that are used by corporations to "slim down" so that they can qualify for an inversion merger, and disregard "passive assets" given to (non-bank) foreign partners to make those companies seem bigger.
What a difference just two weeks can make. AbbVie CEO Richard Gonzales was recently reassuring Shire that he was "more energized than ever" to see the inversion deal go through. Now, plans to create one of the largest pharma companies in the world have been dashed thanks to lawmakers' and the Obama administration's deep opposition to domicile-shifting, tax-cutting inversion deals.
“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,” said AbbVie in a statement. “This fundamentally changed the implied value of Shire to AbbVie in a significant manner.”
What's less clear is what other deals may now be on the chopping block. The speculation is that Horizon Pharma's inversion deal with Ireland's Vidara Therapeutics will likely remain untouched, but that Mylan's purchase of Abbott's drug portfolio may be in danger. AbbVie's move also makes it less likely that Pfizer will continue to pursue Actavis and AstraZeneca—notable since a phone call between AZ and the White House is rumored to have set off the renewed anti-tax-inversion frenzy.