AbbVie To Reconsider Shareholder Recommendation On Inversion Deal For Shire

(RTTNews) - US drug maker AbbVie, Inc. (ABBV) announce Tuesday that it intends to reconsider its recommendation made to its shareholders to adopt the merger agreement to acquire Irish drug company Shire Plc. (SHP.L, SHPG) amid the proposed changes in tax rules in the U.S. A notice to this effect has been sent to Shire on AbbVie's intention to withdraw or modify its recommendation.

AbbVie agreed in mid-July to a $54 billion deal to acquire Shire, and recommended its shareholders to adopt the merger agreement.

According to the terms of the deal, AbbVie must provide three business days' notice of any intention to consider a change in recommendation. AbbVie's Board plans to meet on October 20, unless Shire agrees to waive the notice.

AbbVie noted that its Board will consider, among other things, the impact of the U.S. Department of Treasury's proposed unilateral changes to the tax regulations announced on September 22, including the impact to the fundamental financial benefits of the AbbVie-Shire deal.

Meanwhile, AbbVie said its offer will lapse only if the company's stockholders do not adopt the agreement at a stockholder meeting convened to consider the adoption of the agreement.

AbbVie would end up paying a hefty $1.6 billion breakup fee if it backs out of the deal, but would have to pay only $500 million if its own shareholders decide to vote the deal down instead.

The proposed deal would give AbbVie access to Shire's growing stable of treatments for rare diseases, while its flagship arthritis drug Humira, which accounts nearly 60 percent of its sales, is set to lose U.S. patent protection at the end of 2016.

The reconsideration comes amid the regulatory tightening on such so called tax inversion deals, which enable companies to redomicile in Ireland, Canada, Switzerland or other countries that have much lower corporate tax rates than the U.S., which are among the highest in the developed world.

In order to execute tax inversion deals, the shareholders of the acquired company must receive stock amounting to at least 20 percent of the combined entity.

Some of these companies are sitting on huge cash hoards in their overseas subsidiaries and would be heavily taxed if they repatriated these funds to the U.S. The statutory tax rate in the U.S. is currently 35 percent, while it is 12.5 percent in Ireland and even lower in some other countries.

However, lawmakers are now threatening such companies of reversing the so called tax inversion deals with retrospective effect from May 8, 2014.

Congressional Democrats have already submitted legislation aimed at curbing U.S. companies from doing inversions. Under the proposal, companies that carry out certain types of inversions after May 8, 2014 would remain U.S. corporations for tax purposes. This is aimed at halting the wave of such deals in recent times.

Apart from the legislative proposals, US Treasury Secretary Jack Lew said recently that he is working on regulations to limit the tax advantages of inversion deals.

Several U.S. healthcare companies are increasingly looking at inversions as an option to escape the high rate of corporate taxes in the U.S. as it overhauls its healthcare system under the Affordable Care Act.

Companies like drug maker Valeant Pharmaceuticals International, Inc. (VRX, VRX.TO), Actavis plc (ACT), and Endo International plc (ENL.TO) have already closed such deals since 2010.

Specialty drugmaker Horizon Pharma plc (HZNP) is reportedly the first among over a dozen companies that has successfully closed such deals in recent times by acquiring Vidara Therapeutics International plc. Others are still awaiting closure of the deals.

Medical device maker Medtronic, Inc. (MDT) agreed in mid-June to acquire Dublin, Ireland-based smaller rival Covidien plc (COV) in a cash and stock deal valued at about $42.9 billion.

U.S. drugmaker Pfizer Inc. (PFE) recently made an abortive $116.6 billion takeover bid for British drug maker AstraZeneca plc (AZN, AZN.L) through an inversion. Parsippany, New Jersey-based Actavis relocated to Ireland through an inversion.

In the most recent tax inversion deal, Burger King Worldwide, Inc. (BKW) in late August agreed to acquire Canadian quick-service restaurant chain Tim Hortons, Inc. (THI, THI.TO) in a deal reportedly valued at about $11.4 billion to create a combined entity that will be publicly-listed and headquartered in Canada.

Concerned about the urgency shown by U.S. lawmakers to close the inversion loophole also deterred U.S. agricultural products giant Monsanto Co. (MON) to put talks on a hold related to a near $40 billion acquisition of Swiss crop chemicals company Syngenta AG (SYT) in late May.

ABBV closed Tuesday's regular trading session at $54.13, up $0.51 or 0.95% on a volume of 14.29 million shares. However, the stock lost $1.13 or 2.09% in after-hours trading.

Meanwhile, SHPG closed at $244.57, down $1.41 or 0.57% on a volume of 1.38 million shares. However, the stock lost $19.57 or 8.00% in after-hours trading.