As if the merger-happy pharmaceutical industry didn't have enough to worry about, what with the federal government threatening to crack down on companies that flee overseas to lower their taxes, now there's another set of stakeholders protesting these so-called tax inversions: pension funds.
A pension fund in Louisiana has filed a lawsuit in Delaware seeking to bar AbbVie ($ABBV) from holding a shareholder vote on its planned $54.8 billion merger with Ireland's Shire ($SHPG). The deal is the largest in the recent wave of drugmakers buying out foreign companies with a plan to relocate their headquarters and avoid high U.S. corporate tax rates.
The fund, called the Plumbers & Steamfitters Local 60 Pension Plan, says the U.S. Revenue Service would consider the AbbVie-Shire deal a taxable event. That could cause some AbbVie shareholders to "owe taxes they otherwise would never have had to pay" and to sell their shares to cover the tax bill, according to Bloomberg, quoting the complaint. The lawsuit also alleges that the move out of Delaware, where AbbVie is incorporated, would leave investors vulnerable to less robust protections than they receive in the U.S.
What's more, the fund is concerned about the possible impact if investors vote against the deal, because that would trigger as much as $545 million in termination fees. The lawsuit suggests that AbbVie and Shire should reduce those fees.
"If a board is going to impose this type of penalty on stockholders for exercising their franchise, it should only be in exchange for the board obtaining a blockbuster deal," the complaint says, according to Bloomberg.
AbbVie's plan to buy Shire has been controversial from day one. AbbVie has made no secret of the fact that even though many of its top managers will stay in the U.S., its overseas address will allow its tax base to fall from 22% to 13%--saving the company an estimated $1.3 billion by 2020.
|Treasury Secretary Jacob Lew|
Other life sciences companies in the midst of mergers stand to benefit from lower taxes, including Medtronic ($MDT), which is acquiring Irish medical device maker Covidien ($COV) in a $43 billion deal. Pfizer ($PFE) failed in its bid to buy Britain's AstraZeneca ($AZN), but pretty much everyone expects the two to come back to the bargaining table soon.
Meanwhile, multiple efforts continue to unfold in Washington to stem the tide of tax inversions. Last week, senators Dick Durbin (D-IL) and Chuck Schumer (D-NY) unveiled a bill proposing to lower the interest deductions a company can claim to from 50% of income to 25%, a move designed to restrict "earnings stripping" by companies that move overseas. But Treasury Secretary Jacob Lew said he might not wait for Congress to take action. He's now considering steps the Obama Administration can take on its own to limit tax inversions.
- here's the Bloomberg story