The £32 billion takeover of UK pharmaceuticals firm Shire is in danger of collapse as a result of a tax crackdown announced by the White House.
AbbVie said that its board will meet on Monday to reconsider the purchase of Basingstoke-based Shire, which is best known for its drugs to treat attention deficit disorder.
The Illinois-based firm agreed the purchase of Shire in July when it said the combined company would be domiciled in the UK in a move taking advantage of a lower corporate tax rate.
Since then the US has announced it will crack down on the tax inversion practice, which has already seen a large number of firms use foreign takeovers as a way of lowering their tax bills.
The tax inversion policy had been under consideration by Pfizer earlier this year when it bid for AstraZeneca before it was forced to drop its interest.
AbbVie said its board will consider, among other things, the impact of the US Treasury’s changes to tax regulations, including the “impact to the fundamental financial benefits of the transaction”.
Shire said it believes AbbVie should proceed with the deal and points out that a break fee of around £1bn will be payable by AbbVie if the US firm pulls out of the transaction.
“The board of Shire believes that AbbVie should proceed with the recommended offer on the agreed terms. The board will meet to consider the current situation and a further announcement will be made in due course.”
Shares in Shire fell sharply on the news but recovered some of their lost ground during the day to finish down 21.5 per cent, or 1,107p, at 4,033p.
Earlier this month, North Carolina-based Salix Pharmaceuticals terminated a merger deal with Cosmo that would have seen the two companies relocate in Ireland.
But this week, Swindon-based Synergy Healthcare – set up 23 years ago to reduce HIV infection rates in operating theatres – sold out to US rival Steris in a £1.2bn deal. The newly merged group is set to relocate for tax purposes to the UK.
Shire, led by chief executive Flemming Ornskov, provides treatments in areas such as rare diseases and neuroscience and is developing products in other therapeutic areas. AbbVie’s proposed acquisition of Shire was not solely driven by tax benefits, it also wanted to reduce its reliance on Humira, the world’s top selling arthritis drug which loses US patent protection in 2016.
The new US regulations clearly caught AbbVie by surprise, said Credit Suisse analyst Dr Vamil Divan in a research note. The analyst added that AbbVie’s second thoughts raise questions about the credibility of company executives in part because they had touted many merits to the combination with Shire beyond the inversion’s tax breaks.
Shire had rejected several unsolicited bids from AbbVie before the companies finally reached a deal in July.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “The likelihood of the AbbVie/Shire deal has all but disappeared judging by the market reaction, whilst the possibility of Pfizer approaching AstraZeneca anew must also be in serious jeopardy, both falling foul of the potential tightening of US tax inversion laws.”
Panmure Gordon analyst Savvas Neophytou said the board of AbbVie had a responsibility to consider new facts relating to any ongoing event that impacts shareholder value.