Paul Singer’s Hedge Fund Sues AbbVie Over Failed 2014 Shire Merger

Published: Aug 09, 2016

Paul Singer’s Hedge Fund Sues AbbVie Over Failed 2014 Shire Merger August 9, 2016
By Mark Terry, Breaking News Staff

Elliott Management Corp., a hedge fund, has sued AbbVie over the drug company’s failed acquisition bid for Dublin-based Shire PLC in 2014.

In July 2014, Shire and AbbVie announced their intention to merge. AbbVie is best known for its blockbuster arthritis drug, Humira. Shire is best known for ADHD medications and treatments for ulcerative colitis.

The deal was a tax inversion, which was expected to cut AbbVie’s then tax rate of 22 to 26 percent down to about 13 percent. In September 2014, the U.S. Treasury Department developed new rules to discourage tax inversions, as did Irish regulators.

Shortly afterwards, in October 2014, both companies called off the merger. AbbVie paid Shire a $1.64 billion break-up fee.

Elliott Management argues in its lawsuit that AbbVie had pushed the deal as “strategically compelling” and downplayed the tax inversion benefits. Then when the Treasury Department toughened the rules regarding the tax situation, AbbVie bailed on the deal.

Elliott Management held $1.28 billion in Shire stock on Oct. 14, 2014, according to the lawsuit. After the deal was canceled, Shire stock lost 28 percent of its value. Elliott hasn’t specified exactly how much money it lost, but is seeking punitive damages.

The Wall Street Journal writes, “The lawsuit highlights the difficult line companies walked when explaining the rationale for inversion deals to investors. Inversions grew in popularity several years ago amid a mergers and acquisitions boom. Companies defended the deals as strategically appropriate and denied that their primary goal was to lower taxes.”

Which is probably disingenuous on the part of the companies, given that the tax breaks account for billions of dollars of saved revenue. And in the case of the more recent Pfizer and Allergan (AGN) deal that was scuttled after another round of Treasury rules, the deal would have freed up billions of dollars trapped in offshore accounts. It seems unlikely that Elliott Management, or any other investors, weren’t fully aware that the primary rationale for an AbbVie-Shire merger was as a tax inversion.

Elliot Management, which was founded by Paul Singer, indicated in 2014 that it made money in the third quarter of 2014 on its position on Shire, but lost money in the fourth quarter. It is arguing that it believed, due to AbbVie’s press releases and statements, that even if the tax inversion wasn’t in place, the deal would still go through for strategic reasons.

Elliott has been threatening a lawsuit since November 2014, when in a quarterly letter to investors it wrote, “We are exploring our options with respect to this matter, including whether to assert claims against AbbVie for making false and misleading statements about the transaction.”

It’s not clear why Elliott waited almost two years to file a suit, although it’s possible that it was inspired by the U.S. Chamber of Commerce’s lawsuit last week against the Internal Revenue Service (IRS) over the U.S. Treasury’s rules changes that killed the Pfizer-Allergan deal.

“Treasury and the IRS ignored the clear limits of a statute, and simply rewrote the law unilaterally,” said U.S. Chamber president and chief executive officer, Thomas Donohue, in the complaint. “This is not the way government is supposed to work in America.”

The U.S. Chamber Litigation Center writes, “As explained in the complaint, inversions are the natural consequence of America’s misguided policy of imposing high taxes on corporations, and then trying to export those taxes to income earned globally. ‘Instead of breaking the rules to punish companies engaged in lawful transactions, Washington should just do its job and comprehensively reform the tax code,’ Donohue stated. ‘The real solution is tax reform that lowers rates for all businesses, allowing American companies to compete globally and the Untied States to attract foreign investment.’”

Elliott’s lawsuit has been filed in the Cook County, Illinois Circuit Court.

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