Chicago-based pharmaceutical manufacturer AbbVie Inc (NYSE:ABBV) recommended on Thursday that shareholders vote against the planned $55 billion takeover of Dublin-based Shire PLC (ADR) (NASDAQ:SHPG) (LON:SHP) given the implementation of new U.S. tax rules. This means the deal is very unlikely to go forward despite complaints from a few major shareholders.
Of note, Shire will receive a break-up fee of $1.64 billion if AbbVie’s shareholders choose to reject the transaction.
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New tax rules killed the Shire – AbbVie deal
Abbvie throwing in the towel on the Shire deal is a major victory for the U.S. Treasury Department and the Obama administration, who have been working hard to make tax-avoidance schemes like corporate inversions less attractive.
The new U.S. tax regulations make it less profitable for American firms to shift their tax bases out of the country and into lower cost jurisdictions in Europe.
“The agreed-upon valuation is no longer supported as a result of the changes to the tax rules and we did not believe it was in the best interests of our stockholders to proceed,”AbbVie’s chief executive Richard Gonzalez explained in a statement released Thursday.
A reset for Shire
Although a $1.6 billion breakup fee sounds like a pretty sweet deal, it certainly doesn’t replace the $20 billion destruction of market value Wednesday that occurred after the news that AbbVie Inc (NYSE:ABBV) was reconsidering its bid broke on Tuesday night. Abbvie is down almost another 1% on Thursday.
Shire PLC (ADR) (NASDAQ:SHPG) (LON:SHP) has seen a steadily increasing stock price for several years, with large shareholders such as BlackRock, Inc. (NYSE:BLK), Fidelity and a number of hedge funds.
Paulson & Co, the hedge fund founded by billionaire John Paulson, is also a major shareholder, and the firm issued a statement Wednesday urging AbbVie to go ahead with the deal despite the new tax regulations.
Shire said Thursday it is “considering the current situation and a further announcement will be made in due course.”
Shire PLC (ADR) (NASDAQ:SHPG) (LON:SHP) shareholders shouldn’t be too upset as analysts highlight the firm is now in an even stronger position to acquire more “orphan drugs” – which tend to be highly profitable. Analysts also point out the Dublin-based pharma giant already has a $12 billion credit line set up to fund acquisitions.