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AbbVie cools on $55 bln Shire deal after U.S. tax changes

LONDON (Reuters) – U.S. pharmaceutical company AbbVie said it was reconsidering its $55 billion takeover of Shire in the wake of U.S. government moves to curb deals designed to cut taxes, wiping as much as $13 billion off the London-listed firm’s stock price.

Chicago-based AbbVie said late on Tuesday it was responding to the U.S. proposals which aim to make it harder for American firms to shift their tax bases out of the U.S. and into lower cost jurisdictions in Europe.

AbbVie’s move for Shire, a leader in drugs to treat attention deficit hyperactivity disorder (ADHD) and rare diseases, was announced in July amid a spate of similar takeover deals within the U.S. and European pharmaceutical sector.

It proposed creating a new U.S.-listed holding company with a tax domicile in Britain, which applies low tax rates to patent income and has passed laws that make it easy for companies to shift profits into tax havens.

The news hammered shares in Shire, sending them down 23 percent, back to where they were before the deal talks emerged in June.

Shares in larger rival AstraZeneca, which had rebuffed its own takeover deal by U.S. group Pfizer, fell 2.9 percent while replacement knees and hips maker Smith & Nephew, which had also been touted as a target, fell almost 5 percent.

AbbVie said 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 last month.

Its board will meet on Oct. 20 to consider whether to withdraw or modify its recommendation on the deal with Shire, AbbVie said.

Shire urged AbbVie to push ahead with the deal, and pointed out that the U.S. drugmaker might have to pay it a breakup fee of $1.64 billion were it to renege on its recommendation for the deal to shareholders.

“The board of Shire believes that AbbVie should proceed with the recommended offer on the agreed terms,” Shire said in a statement.

AbbVie’s second thoughts on the deal startled Shire investors, coming just weeks after AbbVie chief executive Richard Gonzalez, in the wake of the Treasury proposals, told employees of both companies he was “more energized than ever” about the transaction.

Moreover, tax advisers had said the Treasury measures were unlikely to significantly impact most inversion deals.

By domiciling the combined group in Britain, AbbVie would be able to cut its 22 percent tax rate to about 13 percent for the new company. Besides the tax advantage, Gonzalez said AbbVie was attracted to Shire’s portfolio of lucrative drugs to treat rare diseases and other medicines in development.

Buying Shire would also reduce AbbVie’s reliance on arthritis treatment Humira, the world’s top selling medicine, whose $13 billion in annual sales account for more than 60 percent of company sales. Although Humira’s U.S. patent lapses in 2016, AbbVie is hoping it will take years longer for rivals to develop generic formulations of the drug.


The number of tax-inversion deals, particularly in healthcare, have surged in the past year, putting pressure on the Obama administration to clamp down on corporate deals aimed at lowering tax bills.

The U.S. Treasury proposed changes to tax regulations that would limit tax inversion, including a prohibition on “hopscotch” loans, which allow U.S. companies to access foreign cash without paying tax in the United States.

Cenkos analyst Navid Malik said AbbVie, by calling for the board meeting, could be playing “hardball” to win better deal terms.

“They could have put this out to try and get Shire back to the table to potentially renegotiate but I don’t think that will happen,” he said.

AbbVie, by walking away from Shire, would run the risk of finding itself a takeover target by a foreign acquirer with a cost-cutting bent, such as Valeant Pharmaceuticals International, said Sanford Bernstein analyst Ronny Gal.

BMO Capital Markets analyst Alex Arfaei maintained his “Outperform” rating on AbbVie, saying the company could shrug off the hefty breakup fee if positive trends for the company are seen this year – including the launch of a new hepatitis C drug and favorable data from trials of potential blockbuster treatments for endometriosis and cancer.


Some of the world’s top hedge fund managers, who had been building up “long” positions betting on future share price gains at Shire due to AbbVie’s bid interest, faced getting burnt by AbbVie’s decision.

Data from Britain’s Financial Conduct Authority (FCA) showed that no fund had a major “short” position of more than 0.5 percent that marked a bet on Shire’s shares falling in future.

“We just don’t know what’s happened,” said one hedge fund manager, who declined to be named.

(Writing by Kate Holton; Additional reporting by Ransdell Pierson, Anjuli Davies and Sudip Kar Gupta; Editing by Anna Willard, Giles Elgood and Gunna Dickson)

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