New Tax Legislations Stops AbbVie Buyout of Shire

By Alexa DellCioppia,
Money and Investing Writer

Over the course of the past few weeks, major news mediums have focused much of their reporting on international events and ailments. More specifically, stories have centered on the U.S.’s continued struggles in finding a procedure to effectively counter ISIS and the current Ebola outbreak.

With all of these extremely important stories emerging, many have forgotten or are completely unaware about new legislation being passed domestically.

One law that has greatly impacted the strategies of U.S. based companies is the recent tax-inversion merger legislation. This had a tremendous impact on companies AbbVie (NYSE: ABBV) and Shire (NYSE: SHPG) this week.

Following the highly publicized Burger King (NYSE: BKW) buyout of Tim Horton’s, there has been a lot of talk about U.S. companies acquiring foreign companies in order to potentially reap the benefits of a lower tax rate.

Similarly, this week, U.S. based pharmaceutical company AbbVie announced they will not be continuing talks to acquire Ireland-based Shire. The deal would have been worth an approximate $55 billion.

Although AbbVie does not explicitly state that new tax legislation was the main reason for their withdrawing, AbbVie’s Chief Executive Officer, Richard Gonzalez stated, “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.”

Essentially, this new legislation makes it significantly harder for U.S. based companies to move their tax base into another country, particularly European countries. Methods previously used to do this are now much harder to execute, and it seems that it makes far less sense for companies to attempt to execute them.

This buyout would have had a great effect on AbbVie’s bottom line. The company, who is the most famous for creating the drug Humira, currently makes about $13 billion from Humira alone.

This makes Humira the highest selling drug in the world. To prove how profitable this company is, consider the fact that this $13 billion only represents 60 percent of the company’s revenue.

The potential tax savings from the deal could have been huge for AbbVie based on these yearly revenues. The company is currently charged a 26 percent tax rate. Had the deal gone through, the company could have cut this in half, meaning an approximate 13 percent tax rate by 2016. This would have meant huge savings and a far greater bottom line.

Following the announcement, Shire shares dropped almost 14 percent. The good news for Shire holders is that as a result of the fallout AbbVie will be charged approximately $1.6 billion as break-up fee.

Although the cancelled merger is not 100 percent official yet, chances are this payout will be coming to Shire holders in the coming weeks.

This fall out has investors wondering about other companies who were in talks to acquire foreign corporations. A particular consideration is Pfizer (NYSE: PFE), who was considering a purchase of AstraZeneca (NYSE: AZN) as early as May. The deal did fall through, but the $118 billion sum put up as a bid had investors wondering if Pfizer would try one more time to acquire the company.

After the AbbVie and Shire fall out and the new tax laws, it seems more unlikely that the deal will ever be picked up again.
So what’s next for the two companies?

Experts predict that Shire will go back to their old ways of making acquisitions, instead of looking to be acquired. After the AbbVie fallout, the $1.6 billion Shire will be getting should help the company move ahead with further acquisitions.

As for AbbVie, future is uncertain. According to many tax experts, “inversions are still possible but the U.S. action has cut their appeal.”

Hopefully AbbVie can still remain a competitive company based here in the U.S., despite the fact that this particular strategy fell through.

Whether this new legislation has a net positive, negative, or overall no impact on companies and tax revenue will be determined as more companies attempt to execute strategies like AbbVie’s. Certainly, this will make it much harder for U.S. based companies to lower their tax rate.

However, this will also discourage new companies from starting here in the U.S.

Perhaps other forming companies will learn from this story and select their home more carefully, but again only time will tell the net impact.

A version of this article appeared in the Tuesday, Oct. 21st print edition.

Contact Alexa at

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