Home >companies >news >AbbVie to buy Shire for $54.8 billion to get tax benefits

Geneva/New York: AbbVie Inc. agreed to buy Shire Plc for about £32 billion ($54.8 billion), becoming the latest US health-care company to shift its tax residence abroad in a record surge in industry deals.

Shire holders will receive cash and stock valued at £52.48 a share, the companies said in a statement on Friday. The price is 53% above Shire’s closing level on 2 May, before AbbVie made its first proposal to buy the company.

The agreement will move North Chicago, Illinois-based AbbVie’s tax residence, though not its management, to the UK in a so-called tax inversion, dropping the company’s tax rate to 13% from 22%. Shire’s treatments for attention deficit hyperactivity disorder and rare diseases will diversify AbbVie’s portfolio, which is dominated by a single drug, the arthritis medicine Humira.

“It’s very, very sweet for Shire," said Guillaume van Renterghem, an analyst at UBS AG in London. “The beauty of this AbbVie-Shire deal is that everybody gets out of this deal in even better shape than they entered it."

The takeover is part of a surge of acquisition activity as companies seek lower taxes, highlighted by Pfizer Inc.’s $117 billion (around 7 trillion) failed bid this year for London-based AstraZeneca Plc. Not including the AbbVie offer, there were deals proposed or completed worth $264 billion in the second quarter, according to data compiled by Bloomberg, five times more than any quarter since at least 2009.

Friday’s deadline

Under British takeover rules, AbbVie needed to make a formal offer by 5.00pm London time on Friday or it would be prevented from bidding for six months in most circumstances.

Negotiating teams from both companies met on Thursday at the law offices of Davis Polk and Wardwell LLP in New York in an effort to finalize terms and announce a deal, said a person with knowledge of the matter who asked not to be identified discussing private information.

The deal caps AbbVie’s two-and-a-half-month pursuit of Shire, which rejected four earlier proposals. Those offers undervalued the company and its growth prospects, Shire said. Its board said on 14 July it would be willing to back AbbVie’s latest offer, and that it was in talks with the company about issues other than price. Shire holders will receive £24.44 pounds in cash and 0.896 of an AbbVie share for each Shire share.

Shire rose 1.9% to £48.98 pounds at 11.30am in London. Before Friday, the stock had surged 69% this year amid speculation the company would be acquired.

Government scrutiny

The US government has been scrutinizing tax inversions, and Senator Ron Wyden, a Democrat from Oregon, is proposing a bill that would make them more difficult to do. In the negotiations, Shire sought protection in case the US passes a law that undercuts AbbVie’s tax benefits and puts the deal’s closing at risk, said two people with knowledge of the matter.

The agreement calls for AbbVie to pay Shire a breakup fee of 3% of the deal’s value, or about $1.6 billion, or reimburse costs of not less than $500 million, if the purchase fails to go through, according to the statement.

AbbVie chief executive officer Richard Gonzalez and his executive team won’t move out of the US. While Shire is based in Dublin for tax purposes, its main executive offices are in Basingstoke, England, and chief executive officer Flemming Ornskov works in Lexington, Massachusetts. AbbVie has said the combined company’s tax domicile will be in the UK.

Ornskov will lead the combined company’s rare-disease unit from Switzerland, reporting to Gonzalez, the companies said. He will also receive $9.9 million as part of a retention arrangement for senior Shire employees, amounting to about 150% of his annual total compensation. Two Shire directors, chairwoman Susan Kilsby and Dominic Blakemore, will join the AbbVie board.

Tax moves

The tax move is only the industry’s latest.

Mylan Inc. said on 14 July that it will buy Abbott Laboratories’ generic-drug business and incorporate the new company in the Netherlands. Medtronic Inc., a Minneapolis-based medical-device maker, on 15 June announced a $42.9 billion takeover of Dublin-based Covidien Plc.

Pfizer’s bid for AstraZeneca—which would have been the largest in industry history—ran into the UK Takeover Panel’s deadline as the companies couldn’t agree on a price.

AbbVie will gain a series of rare disease drugs, including Elaprase for Hunter syndrome, a genetic disorder, and Replagal, to treat Fabry disease. It also inherits experimental products, including lifitegrast for dry eye, and Premiplex for a potentially blinding eye disorder in infants. Premiplex could generate more than $1 billion annually if it reaches the market, said Jason Gerberry, an analyst at Leerink Partners.

ADHD drugs

Drugs for attention deficit disorder, including Vyvanse and Adderall XR, accounted for about 39% of Shire’s revenue last year.

Ornskov had argued for keeping Shire independent, projecting that product sales will double to $10 billion by 2020. He also pointed to his record, including bringing the blockbuster eye drug Lucentis to Novartis AG and improving profit in his first year as Shire’s CEO, hoping to convince investors to leave Shire’s management with him.

JPMorgan Chase and Co. is advising AbbVie on the deal, while Citigroup Inc., Deutsche Bank AG, Evercore Partners Inc., Goldman Sachs Group Inc. and Morgan Stanley are advising Shire. Bloomberg

With assistance from Makiko Kitamura and Kristen Hallam in London and Albertina Torsoli in Geneva.

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