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US pharma giant's €43 billion deal with Ireland-based firm could be off the table now

AbbVie is rethinking its merger with Dublin-headquartered Shire after changes to tax “inversion” rules.

Image: pawpaw67

PHARMA GIANT ABBVIE’S $55 billion (€42.7 billion) deal with Dublin-based Shire is on the skids after the US government’s moves to stamp out so-called “tax inversions”.

The company told investors its board was rethinking the merger it had approved earlier this year as it digested the government’s “unilateral changes” to the country’s tax regulations.

The board wanted to consider the “fundamental financial benefits” of the deal in light of the new rules, it said.

Late last month the US Treasury said it was stepping in to stop “creative techniques” companies were using to maximise their profits including shifting their bases offshore in what are known as a tax inversions.

These “inversions” involve a company setting up a new tax base offshore after merging with or taking over an overseas business, despite in most cases keeping most of its staff and operations in the original home country.

While unrelated to the controversial Double Irish tax loophole, which Finance Minister Michael Noonan said he was phasing out as part of yesterday’s Budget, inversions involving Ireland-based firms have also drawn much ire from US officials.

Companies are able to take advantage of Ireland’s low corporate tax rate of 12.5% using the method even without relying on any further tax-avoidance schemes.

Withdraw or modify?

AbbVie’s board is yet to change its recommendation to investors to go ahead with the merger, but it now plans to meet next week to “consider whether to withdraw or modify its recommendation”.

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The Chicago-based company is worth about $86.2 billion (€68.2 billion) on today’s share price, compared to Shire’s current value of £30.6 billion (€38.2 billion) on the London stock exchange.

Shire’s share price plunged about 25% on the announcement and in a statement today the company said it was yet to be given any detailed information about AbbVie’s tax-related thinking.

Its board said it thought AbbVie should go through with the deal and noted the company was due a $1.65 billion (€1.30 billion) “break fee” if the US company backed out on the merger.

The news follows another US company, medical-device manufacturer Medtronic, announcing it still planned to go ahead with its €32 billion buyout of Ireland-based Covidien despite the treasury’s crackdown on inversions.

READ: The €100 billion deals: that’s how much was spent on Irish mergers so far this year >

READ: Tech firms’ tax shifting ‘not an Irish issue’: Bruton >

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About the author:

Peter Bodkin  / Editor, Fora

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