Another hit for AbbVie: Unexpected $673M Irish tax bill adds to Allergan merger woes

tax
Despite an unexpected tax measure in Ireland, Allergan investors still want a merger with AbbVie. (Pixabay)

Sealing an eight-figure merger is no laughing matter: Just ask AbbVie and Allergan, two drugmakers fighting through regulatory hurdles to consummate their $63 billion deal.

Just weeks ago, U.S. antitrust regulators made a second request for information on the deal, which is generally a sign that merger partners will need to make changes—such as selling off assets—to win approval.

Then, last week, the tie-up saw a new twist that could cost AbbVie hundreds of millions. Ireland’s Minister of Finance Paschal Donohoe introduced new measures targeting mergers made through what are known as “share cancellation schemes,” according to the Irish Times.

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In those deals, which previously were not subject to the country's 1% stamp duty, Irish companies would dissolve existing shares and issue new stock to the acquiring firm to complete the deal. The new measures, meant to target an Irish property group’s €1.34 billion sale to a UK investment firm, closes that loophole and will likely wrap up AbbVie as an unintended victim in the deal.

The bill? Some €572 million ($632 million). Spokespersons for both AbbVie and Allergan could not be reached by press time.

RELATED: FTC throws up extra hurdle to AbbVie's Allergan buy as Roche, Spark dwell in limbo

In order to walk away from the merger, AbbVie would be forced to pay an Irish “termination fee” pegged at more than two times the stamp duty—roughly €1.26 billion, the Times reported. And even after the news hit, shareholders of Dublin-headquartered Allergan overwhelmingly approved the merger.

The latest hiccup in the deal is only the latest in what is becoming an increasingly stretched out approval process for the merger after the Federal Trade Commission opted to take a second look at the deal.

Late last month, the FTC issued a “second request” for information from AbbVie and Allergan. AbbVie called the request “expected” and both companies still say the deal will close on schedule in early 2020.

Both companies have already taken precautionary measures to clear antitrust hurdles, including Allergan volunteering to sell two drugs, brazikumab and Zenpep. Brazikumab belongs to the same IL-23 inhibitor class as AbbVie’s Skyrizi, and both meds are eyeing the inflammatory bowel disease market. Zenpep and AbbVie’s Creon are both pancreatic replacement enzymes.

RELATED: Hey, FTC, unions say: AbbVie-Allergan deal needs close look after 'anticompetitive' history

While both companies have downplayed the FTC request, the review does follow outspoken demands from politicians, consumer groups and unions that regulators take a close look at the deal.

In mid-September, a bloc of public interest groups asked FTC chairman Joseph Simons to take a close look at the deal given the companies’ alleged price hikes, controversial rebate deals and aggressive patent enforcement strategies to hinder competition in the past.

The groups, which include Families USA, Doctors for America and Public Citizen, represent more than 10 million subscribers and members.

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