Abbvie in danger of proving Congress right over Shire

Cantillon: US biopharmaceuticals group Abbvie is in danger of proving the Obama administration and its truculent Congress right.

Its increasing reluctance to see through the $54 billion (€42 billion) acquisition of Irish-headquartered Shire makes Congress's argument against inversions far more eloquently than any politician has done.

Back in July, having finally got Shire to accept its approach after being rebuffed no fewer than four times over two months, Abbvie chief executive Richard Gonzalez was at pains to paint the bigger picture. It wasn't buying Shire "just for the tax impact", he insisted. The deal represented "a compelling opportunity to create a new world-class biopharmaceutical company" with "leadership positions within multiple important areas of medicine, a deeper and broader pipeline . . ." as well as "greater access to its global cash flows".

Now the very Shire executives who baulked at the original proposal are demanding Abbvie follow through on its takeover while Abbvie is widely expected to withdraw a recommendation to its own shareholders to back the deal when its board meets on Monday.

The about face follows discussions between the company and the US Treasury and Internal Revenue Service over new rules limiting the tax and funding advantages of corporate inversions.

Shire’s resistance had forced Abbvie to raise its offer to levels that appear to have made it increasingly reliant on the dividend from such an arrangement.

As Ireland bows to the inevitable, announcing the end of the double Irish, the Department of Finance was making the case that inversions are far from a win-win for Ireland. In documents released after this week’s budget, the department notes that re-domiciling by US corporates to Ireland has increased gross national income by 5 per cent.

Gross national income is used to calculate how much individual states contribute to the EU budget and the department says inversions cost Ireland close to €60 million in contributions to the EU in 2012 alone.

Given the current frenzy of M&A in the pharma sector, any collapse of the Shire deal is unlikely to be the end of the story.