AbbVie, Shire deal seen at risk as US seeks to halt tax inversion

AbbVie's potential purchase of Shire may hit problems after US Treasury Secretary Jacob Lew asked Congress to approve tax changes retroactive to May that would stop such tax inversions deals. Under AbbVie's proposal to buy Shire for more than 30 billion pounds ($51.4 billion), the combined company would be domiciled in the UK in order to benefit from lower corporate taxes and run from North Chicago, Illinois, where the US drugmaker is currently based.

Shire said earlier this week that it is willing to recommend a new takeover offer to its shareholders from AbbVie comprised of 24.44 pounds ($41.87) in cash and 0.8960 shares of new AbbVie per Shire share. However, the Irish drugmaker said its support was "subject to satisfactory resolution of the other terms." UBS analyst Guillaume van Renterghem suggested that as part of the terms, Shire may push for a clause requiring AbbVie to stick to the deal even if the tax inversion structure doesn’t work out.

Commenting on the news, Henrietta Treyz of Height Analytics asserted that the request by Lew is unlikely to result in changes to the US tax code this year. "Absent a major catalyst from the business community, such as additional announcements by major, longstanding American companies that they are also considering inversion, we do not see the two parties coming together this election year to enact a significant change to the tax code," Treyz said. Van Renterghem agreed with tax experts who suggested that any potential legislation is unlikely to have a retroactive effect, with the analyst noting "our view is that we don’t think it will be backdated."

The news comes after Pfizer unsuccessfully attempted earlier this year to acquire AstraZeneca for up to 69.4 billion pounds ($119 billion) in an effort to relocate its tax address to the UK. Meanwhile, Mylan announced earlier this week that it will relocate to the Netherlands as part of a $5.3-billion transaction with Abbott.

For related analysis, see ViewPoints: Abbott, Mylan pursue a new, more aggressive spin on tax inversion takeouts and ViewPoints: Tax inversion continues to drive pharma M&A deals both large and small.

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