AbbVie Board Officially Abandons $55 Billion Shire Merger
October 16, 2014
By Mark Terry, BioSpace.com Breaking News Staff
After yesterday’s rumors that a planned merger between biotech AbbVie with U.K.-based Shire was on the rocks, it’s official—AbbVie has recommended that shareholders reject the deal.
The takeover, a so-called “tax inversion,” was clearly affected a decision made by the Irish government Monday to scuttle such tax perks, as well as pressure from the Treasury Department. Should AbbVie shareholders take the recommendation and turn down the transaction, AbbVie will pay a $1.64 billion break-up fee.
The two companies had announced in July of this year that they intended to merge. Chicago-based AbbVie is the manufacturer and marketer of the blockbuster arthritis drug Humira, which will lose U.S. patent protection in 2016.
Shire is best known for ADHD medications and treatments for ulcerative colitis.
A tax inversion is when a larger U.S. company acquires a smaller company headquartered in country with a lower corporate tax rate. The merged company then moves its headquarters to the lower-tax country. The AbbVie-Shire deal was expected to cut AbbVie’s current tax rate of 22 percent (some sources cite 26 percent) to about 13 percent.
In September 2014 the U.S. Treasury Department created new rules to discourage tax inversions. On Monday, Irish regulators signaled they will be closing lucrative tax loopholes for foreign companies. AbbVie's change of direction appears to be a direct result of those changes.
“The agreed-upon valuation is no longer supported as a result of the changes to the tax rules,” said AbbVie CEO Richard Gonzalez in a statement, “and we did not believe it was in the best interests of our stockholders to proceed.”
In a statement made last today, AbbVie said that the Treasury’s 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. This fundamentally changed the implied value of Shire to AbbVie in a significant manner.”
A shareholder meeting will be held prior to Dec. 14 to vote on the deal. Analysts have continued to express surprise at the recommendation to terminate the deal.
AbbVie is reliant on the $13 billion in annual sales of Humira, which represents more than 60 percent of company revenue. With the likelihood of competitive generics in two years as a result of patent protection ending, AbbVie would have been able to decrease its reliance on the drug for profits.