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AbbVie votes against Shire takeover

Article By: ,  Financial Analyst
October 16, 2014 11:15 AM

US drug firm AbbVie is pulling back plans to purchase UK-based rival Shire.

The Chicago company's shareholders voted against the $54 billion (£34 billion) takeover offer after the US government's decided to reduce tax benefits for firms merging overseas. News of AbbVie's withdrawal saw shares in Shire fall by 11 per cent on Thursday morning (October 16th), following from the 22 per cent drop a day earlier after AbbVie said it was reconsidering its offer.

Despite the US firm deciding against purchasing Shire it will still be required to pay $1.64 billion in a break fee as agreed in the takeover agreement reached in July. AbbVie had been planning to move its tax base from the US to the UK with Jersey identified as a key location. This would have seen AbbVie cut its corporation tax from 22 per cent to 13 per cent 2016.

Richard Gonzalez, AbbVie's chairman and chief executive, said: "Although the strategic rationale of combining our two companies remains strong, 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.”

The breakdown of the takeover represents the biggest deal to fail following the US government's clampdown on multinational tax loopholes. A number of major organisations have previously relocated from the US to countries like the UK or Ireland to avoid paying larger corporation tax rates.

President Barack Obama and his administration is keen to stop companies from channelling money overseas and then avoid paying tax.

It has now put a number of deals in jeopardy with Salix Pharmaceuticals recently having to scrap its merger with Italian drugmaker Cosmo Technologies, a subsidiary of Cosmo Pharmaceuticals, which would have seen the US firm significantly lower its long-term tax rate.

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