AstraZeneca PLC, Shire Slip As The U.S. Looks To Stop Tax Inversion Deals

Published: Aug 07, 2014

AstraZeneca And Shire Slip As The U.S. Looks To Stop Tax Inversion Deals AstraZeneca And Shire Slip As The U.S. Looks To Stop Tax Inversion Deals

August 7, 2014
By Jessica Wilson, Breaking News Staff

Stocks of AstraZeneca and Shire pharmaceutical companies based outside the U.S., have fallen in recent days due to the Obama administration’s hard stance against their possible mergers with U.S. pharmaceutical companies.

The Obama administration has drawn a line in the sand against so-called tax inversion mergers. Such mergers involve U.S. companies buying foreign ones in order to transfer their headquarters outside of the U.S. to avoid this country’s corporate taxes. While the U.S. has the highest corporate tax rate in the developed world at 35 percent, which motivates some corporations to seek tax inversion deals, Obama has stated that such deals are “unpatriotic.” The Treasury Department has announced that it will seek to reduce the tax benefits of these types of mergers in order to discourage companies from pursuing them.

In July, AbbVie , based in the U.S., offered to purchase Shire, based in Dublin, Ireland, for $55 million; Shire accepted the bid. In addition to generating tax inversion benefits, the merger would allow AbbVie to reduce its dependence on the $11 billion arthritis drug, Humira. Shire’s product range targets rare diseases, neurological disorders and gastrointestinal disorders, which would complement, rather than compete with, AbbVie’s product range. AbbVie’s shareholders have not yet approved the deal and the threat of legal opposition to it may thwart their approval.

In May, Pfizer ’s bid to purchase AstraZeneca for $120 billion failed due to AstraZeneca’s board claiming that the offer undervalued the company. However, it was expected that Pfizer would make another offer in the coming months. This inference was drawn from a statement by Pfizer CEO Ian Read that the company is “aggressively” pursuing acquisition goals and that “tax inversion is one part of the value equation,” and was a key factor in Pfizer’s interest in AstraZeneca.

With the trend for tax inversion deals, the stock price of companies seen as candidates for such mergers rose. However, the climate has changed and the possibility that such deals may not go through due to increased regulation has caused share prices to drop. On Wednesday, Shire’s stock price fell from an opening of $82.12 to $77.40 at the closing bell. AstraZeneca’s stock price dropped 2 percent from $72.41 per share to $70.91.

The U.S. Congress, which is in recess until September, has been deadlocked on the issue of whether to curtail tax inversion deals. However, because it’s an election year, Congress may not risk any action in the near future.

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