US giant drugmaker AbbVie Inc’s Board of Directors has advised its shareholders not to vote in favor of the $54 billion acquisition of Shire Plc. The Board cited recent moves by the US treasury penalizing inversion, adding that there is now an “unacceptable level of uncertainty surrounding the deal.”
Initially, AbbVie had assured its employees last month that the deal would go through despite the new tax regulations. However, earlier this week the Board warned that it would meet and might change its mind.
The two companies had planned to move the new merged entity’s headquarters to Jersey, a tax haven island within the British Isles. Shire plc is incorporated in Jersey.
AbbVie’s Chairman and CEO, Richard Gonzalez, said on Wednesday:
“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 interests of our stockholders to proceed.”
Shire’s Board of Directors has advised its shareholders to approve AbbVie’s takeover deal. It added that the US drugmaker would have to pay a $1.6 billion ‘break fee’ for doing a U-turn and scuttling the deal.
In early-morning trading on Thursday, Shire’s share price dropped 11%, after falling 22% on Wednesday.
US Democratic Party lawmakers have criticized companies for reincorporating to another country in order to reduce their corporate tax bills – a strategy known as ‘tax inversion’.
The US Treasury Department took measures in September to curb the tax advantages.
US drug company Salix pharmaceuticals walked away from a previously agreed merger deal with an Italian pharma firm following the new tax rules.
Shire made the following statement on Thursday regarding AbbVie’s announcement:
“The Board of Shire plc. notes the announcement by AbbVie Inc. of its Board’s decision to withdraw its recommendation of the offer for Shire.”
“The Board of Shire is considering the current situation and a further announcement will be made in due course.”
