Abbvie and Shire terminate deal

AbbVie and Shire have agreed to terminate what would have been the biggest US tax inversion after AbbVie pulled its support for the deal in the wake of proposed changes to US rules governing such transactions.

AbbVie, based in North Chicago, Illinois, planned to buy Shire for an estimated $52 billion, then move the combined company’s legal address to the UK to lower its tax bill and access cash trapped overseas.

After confirming the deal was dead, the drugmaker announced a $5 billion share buyback over the next several years and increased its quarterly dividend by 17 per cent, to 49 cents per share.

“We recognize that without a transaction the size of Shire, our cash position will build quickly, it has always been our commitment to return cash to shareholders,” Richard Gonzalez, AbbVie’s chief executive officer, said in a conference call following the announcements. The deal is the largest casualty yet of rules announced last month by the US Treasury Department to make tax inversion deals more difficult. The new rules “reinterpreted longstanding tax principles in a uniquely selective manner designed specifically to destroy the financial benefits of these types of transactions,” AbbVie said today in a statement.

AbbVie said it will pay Shire a breakup fee of $1.64 billion. Shire is based in Ireland for tax purposes, but has executive offices in Basingstoke, England. Shire said it remains “well-positioned” to focus on the company’s previously announced growth strategy. ‘

‘Disappointed’

“While we are disappointed that the offer will not now complete, we continue to enjoy excellent prospects as we execute our plan to double Shire’s product sales to $10 billion by 2020,” Susan Kilsby, the company’s chairman, said in a statement.

Since the US Treasury’s Sept. 22 notice about tightening tax rules, three of eight inversion deals have fallen apart. Auxilium Pharmaceuticals canceled its merger with QLT, a Vancouver-based biotechnology company, which would have shifted its legal address to Canada. Auxilium instead agreed to be acquired by Endo International Plc, which is run from the US though incorporated in Ireland. Salix Pharmaceuticals, based in Raleigh, North Carolina, also terminated a $2.7 billion merger agreement with Italy’s Cosmo Pharmaceuticals.

New inversions

Two new tax relocations have been announced since then, leaving seven pending inversions including Ohio-based Steris Corp.’s £1.2 billion offer for Synergy Health, which would allow the US company to move to the UK for tax purposes. Civeo, a Houston-based owner of worker housing, said it would relocate its tax address to Canada instead of becoming a real estate investment trust. The takeover of Shire would have expanded AbbVie’s portfolio of medicines, particularly by gaining treatments for attention deficit hyperactivity disorder.

AbbVie’s “challenge now is in two years they lose their patent on one of the biggest blockbusters of all time, and they’ll have to replace that,” said Bill Smead, CEO of Smead Capital Management, in reference to the arthritis drug Humira. Smead owns AbbVie shares.

Bloomberg