AbbVie calls it quits on $55B Shire takeover

AbbVie CEO Richard Gonzalez

Another one bites the dust in the Big Pharma tax inversion craze. Weeks after the U.S. Treasury Department laid out new tax rules to limit the stream of corporate inversions, AbbVie ($ABBV) called it quits on its proposed $55 billion takeover of Dublin-based Shire ($SHPG).

The Illinois-based company said Wednesday that it would recommend shareholders vote against the deal, responding to new guidelines that make it more difficult for businesses to shift their domicile abroad for tax-paying purposes, Reuters reports. AbbVie is required to hold a meeting before Dec. 14 to vote on the deal, and Shire stands to take home a $1.64 billion breakup fee if company shareholders decide to toss out the transaction.

In an SEC filing, the company snubbed the Treasury Department's new tax rules, saying that the sweeping changes "introduced an unacceptable level of uncertainty to the transaction" and eliminated certain financial benefits. Moving its domicile to the U.K. would have reduced AbbVie's tax rate from 22% to 13%, saving the company an estimated $1.3 billion by 2020. AbbVie planned to use offshore cash to help finance its deal with Shire, but under U.S. Treasury Secretary Jack Lew's proposed changes, the company would not be able to do so tax-free.

"Although the strategic rationale of combining our two companies remains strong, 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 interest of our stockholders to proceed," AbbVie CEO Richard Gonzalez said in the company's filing.

Shire CEO Flemming Ornskov

The breakup comes on the heels of uncertainty, as last month rumors emerged that AbbVie might back out on its planned takeover of Shire. Gonzalez took pains to reassure employees that the deal would go through, traveling to Shire's U.S. offices for a series of meet-and-greets and sending a letter titled "An Inspiring Visit" to boost morale. "I'm more energized than ever about our two companies coming together, especially because I can already see many shared traits and values in the people at AbbVie and Shire," Gonzalez said in the letter printed in The Wall Street Journal.

But if shareholders vote against the proposed deal, Shire could find itself singing an old tune. Before accepting AbbVie's proposal, Shire CEO Flemming Ornskov said the company was better off alone and snatched up smaller operations to boost its bottom line. With breakup fee cash in tow, Shire could find itself with more than a few enticing options on the table.

Meanwhile, other pharma companies with pending inversion deals are meeting a similar fate. Last month, Illinois-based Hospira ($HSP) put the brakes on its proposed acquisition of French outfit Danone after Sen. Dick Durbin (D-IL) wrote a letter to CEO F. Michael Ball urging the company not to turn its back on American taxpayers. Earlier this month, Salix Pharmaceuticals ($SLXP) and Auxilium Pharmaceuticals ($AUXL) called off their planned merger, casting a pall over rumored deals such as Pfizer's ($PFE) for AstraZeneca ($AZN).

- read the Reuters story
- here's AbbVie's SEC filing

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