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AbbVie: "risks and uncertainty" of US tax policy behind decision to drop Shire bid

Out-Law News | 21 Oct 2014 | 4:43 pm | 2 min. read

US pharmaceutical company AbbVie dropped its proposed £54 billion acquisition of UK rival Shire as a direct result of changes to the way in which authorities in the US treat cross-border mergers for corporate tax purposes, it has confirmed.

In a statement published on its website, AbbVie said that the US Treasury's September announcement on corporate 'inversions' "re-interpreted longstanding tax principles in a uniquely selective manner designed specifically to destroy the financial benefits of these types of transactions". It said that Treasury plans to further revise its policies in this area "introduced an unacceptable level of risk and uncertainty" into the transaction.

"The US has woken up to the fact that its tax system is out of step with much of the rest of the developed world, and companies are leaving as a result," said tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com. "The changes which have halted the AbbVie/Shire deal are a sticking plaster rather than a long-term solution - that will require political consensus, which will be difficult to achieve at least in the short term."

"It is ironic that Shire itself 'inverted' from the UK to Ireland in 2008, in response to the UK tax system at the time. Since then, the UK has developed one of the most competitive tax systems in the OECD, but it seems that the US is reluctant to learn the same lesson. Instead, US politicians have decided that short-term prevention of inversions is better than a long-term cure for the ills of their tax system," she said.

AbbVie's board announced last week that it had withdrawn its support for the proposed takeover. The company is now prevented from making a further offer for Shire without the consent of the UK's Takeover Panel for the next 12 months. AbbVie will pay a 'break fee' to Shire of around $1.6 billion, which it said would be "Shire's sole and exclusive remedy for all losses and damages in connection with the transaction".

Under US tax laws, corporate inversions occur when a US-headquartered multinational company restructures so that the US parent company is replaced by a company in a lower tax jurisdiction. Announcing new anti-tax avoidance measures last month, the US Treasury said that the practice "erodes the US tax base" by allowing companies to avoid the US taxes they would otherwise be required to pay.

AbbVie said that after conducting a "thorough review" of the September notice and seeking tax, legal and financial advice, it had "concluded that the transaction was no longer in the best interests of stockholders at the agreed upon valuation". The terms of the deal had been agreed by the two companies in July, before the US Treasury's announcement; however, the arrangement remained subject to the approval of shareholders.

Richard Gonzalez, AbbVie's chairman, said that the US Treasury's announcement had "destroyed the value" in its bid for shire without resolving "a critical issue facing American businesses today".

"The US tax code is outdated and is putting global US-based companies at a disadvantage to foreign competitors in an area of critical importance, specifically investing in the United States," he said. "Comprehensive tax reform is essential to create competitiveness and to stimulate investment in the economy."