Shire shares are hammered as AbbVie looks to renege on $54B buyout

AbbVie to Shire: Maybe that idea about merging regardless of what the Obama administration thinks wasn't so hot after all.

AbbVie CEO Richard Gonzalez

Initially, AbbVie ($ABBV) blew off a change in tax rules aimed at blocking inversions designed to trade high U.S. corporate rates in exchange for the attractive tax terms earned by overseas companies like Shire ($SHPG). But after a little reflection, AbbVie's board now wants to weigh the financial implications of the changeup. And the news, delivered late Tuesday, triggered a 27% plunge in Shire's shares during premarket trading today as investors sized up the implications of AbbVie's sudden case of cold feet.

"AbbVie has notified Shire under the Co-operation Agreement that AbbVie's Board of Directors intends to meet to consider whether to withdraw or modify its recommendation. Under the Agreement, AbbVie must provide three business days' notice of any intention to consider a change in recommendation. Accordingly, AbbVie's Board plans to meet on October 20, 2014, unless Shire agrees to waive the notice," the company said in a statement.

Shire's board members fired back a statement soon after saying that they felt the deal should move ahead on the agreed terms, noting that a bid collapse would cost AbbVie $1.6 billion for the breakup fee.

Analysts considered the sudden case of indecision as a likely indicator that the deal was suddenly on the rocks, though by Wednesday morning the market buzz also included speculation that AbbVie may want to proceed with the acquisition, but change the numbers. 

Shire CEO Flemming Ornskov

AbbVie had planned to use offshore cash to help finance the $54 billion merger, as reported by FiercePharma, but under new rules the company would be hit with a hefty tax bill. That's a key part of the administration's plan to halt the exodus of U.S. companies which are escaping high corporate tax bills by merging with foreign companies and moving their tax base overseas.

"The likelihood of the AbbVie/Shire deal has all but disappeared judging by the market reaction, whilst the possibility of Pfizer approaching AstraZeneca anew must also be in serious jeopardy, both falling foul of the potential tightening of US tax inversion laws," noted Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, according to The Guardian.

Shire CEO Flemming Ornskov has been keeping a low profile in recent weeks, clearly spooked that the deal could derail at any point. Ornskov has pulled out of scheduled public appearances in Boston and New York to avoid any potential complications.

Just days ago AbbVie CEO Richard Gonzalez told the staff that he was "more energized than ever about our two companies coming together." But reality has taken hold as the numbers crunchers have stepped in to consider the bottom line.

If the deal does go south it would mark the latest in a string of soured and restructured deals, including Salix's ($SLXP) proposed buyout of a Cosmo unit. It could also spell trouble for Pfizer ($PFE), which has continued to indicate that a tax inversion remains a high priority even after seeing its bid for AstraZeneca ($AZN) founder earlier this year.

- read the statement

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