AbbVie & Shire Cancel Merger Following U.S. Treasury Anti-Inversion Moves

October 27, 2014

AbbVie has called off its plans to merge with Ireland-based Shire, citing the U.S. Treasury Department’s recent efforts to dissuade so-called tax inversions.

The announcement last week came four days after the company’s board of directors withdrew its support of the planned $54 billion merger, the U.S. pharmaceutical company said. Ending the merger at this stage will cost AbbVie more than $1.6 billion, the company added.

AbbVie and its board had been in favor of the merger until Sept. 22, when Treasury announced a series of tax policy changes aimed at dissuading tax inversions by which companies seek to move their tax base out of the U.S., often through merging with other firms. 

The notice introduced an unacceptable level of risk and uncertainty given the magnitude of Treasury’s proposed changes, AbbVie said.

AbbVie had pursued Shire in part for its rare disease therapy pipeline and a more friendly tax climate, a move especially popular among U.S. pharmaceutical firms. Reincorporating in Ireland would have given AbbVie an effective tax rate of 13 percent. Instead, AbbVie will continue paying 21 percent and under the terms of the agreement, is required to pay Shire $1.635 billion for breaking the deal.

Cutting back on tax inversions will not solve underlying issues for U.S. businesses, AbbVie said in a swipe at the Treasury Department and the tax code. “The U.S. tax code is outdated and is putting global U.S.-based companies at a disadvantage to foreign competitors,” AbbVie Chairman and CEO Richard Gonzalez said.

For its part, Shire sought in its own announcement of the cancellation to assuage the fears of its shareholders. The company still has strong momentum going forward, Shire said, noting a number of milestones it has achieved since the merger was first announced. — Bryan Koenig

Originally appeared in Drug Industry Daily, the pharmaceutical industry’s number one source for regulatory news and information. Click here for more information.