AbbVie Considers Ending Shire Deal on Tax Rule Changes.

http://www.bloomberg.com/news/2014-10-15/abbvie-board-to-reconsider-recommendation-for-shire-deal.html

AbbVie Inc. is considering scrapping its planned 32.4-billion-pound ($51.5 billion) acquisition of drugmaker Shire Plc in what would be the biggest casualty of the U.S. crackdown on so-called tax inversions.

Shire’s stock plunged the most in 12 years after AbbVie said its board will meet by Oct. 20 to reconsider its recommendation that shareholders approve the deal. The U.S. company cited changes to tax regulations announced Sept. 22 by the U.S. Treasury Department. AbbVie expected to lower its tax burden by buying Shire and moving its legal address to the U.K. The deal should proceed, Shire said in a separate statement.

AbbVie’s announcement surprised investors, since the North Chicago, Illinois-based company told employees last month the purchase would go ahead. The proposed deal, announced July 18 and part of a wave of similar moves this year, would be the biggest inversion if it is completed.

“Investor reaction is one of confusion and shock and we hope this will be resolved quickly,” Jeffrey Holford, an analyst at Jefferies LLC in New York, wrote in a report today. “The limited communication from AbbVie is exacerbating the level of concern.”

‘Bad Sign’

AbbVie’s decision to reconsider the Shire purchase indicated to some investors that other tax inversion deals are less likely.

AstraZeneca Plc, a London-based drugmaker that spurned a takeover offer from Pfizer Inc. this year, dropped 3.4 percent to 42.56 pounds. Pfizer has considered a renewed approach, or bidding for Actavis Plc, another deal that would allow the company to move overseas and reduce its taxes, people with knowledge of the matter said last month.

“This kind of news today is a bad sign for an AstraZeneca/Pfizer deal,” said Odile Rundquist, an analyst at Helvea SA in Geneva. “If Pfizer doesn’t get the full benefit of lower taxes, they should reduce their price, and that’s something Astra will never accept. These new inversion rules are definitely a negative.”

Shire would be owed a $1.6 billion breakup fee if AbbVie’s board changes its recommendation and shareholders don’t approve the deal, Shire said today.

A U.K. home is attractive to companies for several reasons. The corporate tax rate there is 21 percent and scheduled to decline to 20 percent next year, compared with 35 percent in the U.S. Also, unlike the U.S., the U.K. doesn’t tax the profits companies earn outside the country.

The Treasury Department last month detailed rules designed to make so-called inversions less attractive. The rules, which will be effective for deals that close on or after Sept. 22, address some of the techniques U.S. companies have been using to move their tax addresses outside the country.

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