AbbVie cuts and runs from $55B Shire deal, signaling retreat from tax inversions

It turns out that AbbVie's ($ABBV) big $55 billion buyout of Shire ($SHPG) was primarily about the tax inversion after all.

Shire CEO Flemming Ornskov

After first vowing to see the merger through despite new tax rules designed to make a merger much more difficult, AbbVie's board publicly hesitated yesterday and then early this morning recommended against going through with the tie-up, essentially killing the deal.

According to AbbVie, the new rules destroyed a significant part of the value of the deal. And AbbVie sounded ready to accept the $1.6 billion breakup penalty it had baked into the deal--a stinging setback for the recent Abbott ($ABT) spinout.

The sudden retreat may mark an end to tax inversions, which have been particularly popular in the global biopharma business. Companies like Actavis ($ACT) have banked on a tax dodge that allowed them to use mergers to dump high U.S. rates in exchange for lower levies from the likes of the U.K. and Ireland.

The big question now is whether Pfizer ($PFE) will back away from its determined quest to pull off a tax base flip, or whether it will continue to pursue AstraZeneca ($AZN), Actavis and perhaps others as its financial position deteriorates in the face of a weak pipeline.

AbbVie CEO Richard Gonzalez

From AbbVie's perspective, the numbers just don't work anymore.

"The breadth and scope of the changes, including the unexpected nature of the exercise of administrative authority to impact longstanding tax principles, and to target specifically a subset of companies that would be treated differently than either other inverted companies or foreign domiciled entities, introduced an unacceptable level of uncertainty to the transaction," AbbVie noted in a statement. "Additionally, the changes eliminated certain of the financial benefits of the transaction, most notably the ability to access current and future global cash flows in a tax efficient manner as originally contemplated in the transaction. This fundamentally changed the implied value of Shire to AbbVie in a significant manner." 

Shire, which has been on analysts' short list as a potential takeover target for years, has lost a significant amount of luster this week. Its board put out a terse statement early Thursday saying that they were considering the situation. Its stock plunged 30% yesterday and bounced up this morning after taking an early dive.

- here's the release

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