After receiving a £53.20 ($91.05) per share offer, Shire recommends AbbVie’s proposal to its shareholders. Under the new offer, the Dublin-based company’s shareholders would own about one quarter of the combined new firm.
Several media sources on both sides of the Atlantic wrote during the weekend that Shire had asked the Chicago-based drugmaker to sweeten its offer to £53 per share so that it could recommend the proposal.
At the close of business on Friday, Abbvie’s and Shire’s shares closed 0.76% down and 5.9% up respectively.
Abbvie’s 5th proposal
Shire wrote in a press release today that after discussions with AbbVie Inc., it requested and received a revised proposal from the American company on 13 July.
The fifth cash and shares offer consists of £24.44 in cash and 0.8960 shares of new AbbVie per Shire share, with Shire shareholders owning about 25% of the combined new AbbVie.
Shire wrote:
“The Board of Shire has indicated to AbbVie that it would be willing to recommend an offer at the level of the Revised Proposal to Shire shareholders subject to satisfactory resolution of the other terms of the offer. Accordingly, the Board is in detailed discussions with AbbVie in relation to these terms.”
Abbvie keen to diversify its portfolio
Almost sixty percent of AbbVie’s revenue today comes from just one drug, rheumatoid arthritis medication Humira (adalimumab). Humira’s patent will expire in 2016, when cheaper generic versions will flood the market.
AbbVie is racing against time to find replacements for the massive income fall that will occur in 2016 when Humira sales plummet.
Shire has a promising portfolio of experimental medications in the pipeline, some of which experts believe are likely to become good sellers one day. AbbVie’s situation, on the other hand, looks much less rosy, it does not have many exciting drugs in development or undergoing human trials.
Tax inversion benefits for AbbVie
During AbbVie’s attempts to try get Shire interested in a takeover deal, the Dublin-based, London-listed company repeatedly warned its stockholders against an acquisition based partly on Ireland’s much lower corporate tax rate (12.5%) compared to the USA’s (38%). Corporate tax in the United States is the highest among the rich nations.
By moving to Ireland, AbbVie’s tax bill will be significantly lower.
A growing number of US-based firms have been trying to buy companies overseas, especially in the UK, Ireland and Switzerland, so they can move their head offices abroad and pay less tax.
The world’s largest drugmaker, Pfizer, spent months trying to acquire AstraZenca, the UK’s second largest pharmaceutical company. A number of Pfizer executives admitted openly that the British more business-friendly tax rate was one of the reasons for its acquisition quest. Pfizer was unsuccessful.
Last week, Swiss-based Wild Flavors and Illinois-based Archie Daniels Midland (ADM) announced they had an agreement on an acquisition deal worth $3.13 billion. ADM has so far made no mention of possibly decamping its headquarters to Switzerland, where the corporate tax rate is 17.92%.
Over the last thirty years, most of the advanced economies have reformed their corporate tax systems, with the exception of the United States. There is bipartisan agreement in the US that if the 38% corporate tax rate were reduced and the way taxing overseas profits changed, both the companies and the government would be better off.
According to a study carried out by the Council on Foreign Relations published in May, America’s corporate tax system is encouraging tax money to stay abroad.
