AbbVie sets tax-inversion record with Shire deal
We wouldn’t be doing it if it was just for the tax impact
AbbVie Inc. and Shire PLC’s US$54.8-billion deal will make AbbVie the largest U.S. company to move its legal address abroad to lower its taxes as U.S. lawmakers seek ways to curb the transactions.
Shire holders will get cash and stock valued at £52.48 (US$89.68) a share, the companies said Friday in a statement. The price is 53% above Shire’s closing level on May 2, before AbbVie made its first takeover proposal.
The acquisition comes in a record period of pharmaceutical deals. It will allow Chicago-based AbbVie to move its legal residence, though not its operations, to the U.K., lowering it’s tax rate in 2016 to 13% from 22%. Shire’s drugs for attention deficit hyperactivity disorder and rare diseases will diversify AbbVie’s portfolio, dominated by the rheumatoid arthritis medicine Humira.
Analysts asked if the deal was done primarily for tax reasons. “This is a transaction that we believe has excellent strategic fit, well beyond the tax impact,” AbbVie chief executive Richard Gonzalez said on a conference call. “We wouldn’t be doing it if it was just for the tax impact.”
At the same time, Mr. Gonzalez said the higher corporate tax rate in the U.S. is pushing companies abroad. “Companies like ours need access to our global cash flows,” he said. “Today we’re at a disadvantage compared to our foreign competitors, and that’s the debate we should be having around inversions and our tax code.”
The U.S. government has been scrutinizing so-called tax inversions, and Senator Ron Wyden, a Democrat from Oregon, is proposing a bill that would make them more difficult to do. A congressional panel estimated this year that preventing future inversions would preserve US$19.5-billion in otherwise forgone tax revenue over the next 10 years.
Mr. Gonzalez, during his call, said government action to stop tax inversions probably won’t halt the Shire deal.
“We’ve looked carefully at that aspect and we believe its executable,” he said.
Every deal that gets done, though, puts pressure on the U.S. government to act, said Brian Corvino, an analyst with Decision Resources Group.