July 19, 2014
(Reuters) – U.S. drugmaker AbbVie Inc (ABBV.N) bought Dublin-based Shire Plc (SHP.L) on Friday in a 32 billion pound deal that will allow it to slash its tax bill by relocating to Britain.
The London-listed company, which makes expensive medicines to treat rare diseases, fought off four earlier bids from AbbVie until the U.S. firm raised its price to 52.48 pounds per share – made up of 24.44 pounds in cash and 0.8960 new AbbVie shares.
Chicago-based AbbVie is buying Shire to cut both its U.S. tax bill and its reliance on arthritis drug Humira, the world’s top selling medicine which loses U.S. patent protection in 2016. AbbVie, which generates nearly 60 percent of its revenue from Humira, had until Friday to announce a firm offer for Shire, extend the deadline or walk away under UK takeover rules.
It now plans to create a company listed in New York, incorporated in Jersey, the Channel Islands, and tax-domiciled in Britain, which will pay an effective tax of about 13 percent by 2016, sharply lower than its current rate of about 22 percent, making the deal one of the biggest driven by the tactic known as tax inversion.
America’s Pfizer Inc (PFE.N) tried to pull off the same trick earlier this year when it made a bid for Britain’s AstraZeneca plc (AZN.L) though its $118 billion deal was rejected.
Calls for political action to stop tax inversion deals are growing in the United States. U.S. Treasury Secretary Jacob Lew urged Congress this week to take steps to discourage companies moving their tax domiciles aboard, saying “economic patriotism” was needed. [ID:nL2N0PR0VW]
Dick Durbin, the No. 2 Democrat in the U.S. Senate, criticized AbbVie for moving after using taxpayer-supported medical research to become one of the United States’s most profitable companies.
“It was our government’s patent office which protected their discoveries and guarded their right to make a profit,” said Durbin of Illinois. “Now AbbVie is ‘moving’ to an Irish island to escape paying the U.S. taxes it owes.”
AbbVie’s Chairman and Chief Executive Officer Richard Gonzalez said he thought the debate would be more appropriately shifted to tax reform and making companies more competitive in the global economy. U.S. companies cannot move overseas earnings back into the country for acquisitions or investment without losing part of it to the taxman.
“Companies like ours need access to our global cash flows to be able to make investments all around the world, but specifically to be able to make investments in the United States, and today we at a disadvantage versus many of our foreign competitors,” he said.
However, he added, tax cutting was not the main objective of the Shire deal.
“It’s not the primary rationale for this,” he told analysts on a conference call, explaining that the combined group would have leadership positions in immunology, rare diseases, neuroscience, and metabolic and liver diseases, as well as a best-in-class product development platform, a stronger pipeline and better R&D capabilities.
The merged group will also have more firepower for acquisitions, he said, particularly to bolster the rare disease business, the foundations of which were built on acquisitions by Shire.
Shire’s board had said on Monday it was ready to recommend the higher offer from AbbVie, signalling the end of a lengthy courtship. [ID:nL6N0PP17H]
AbbVie’s agreed price represents a premium of about 53 percent to Shire’s share price on May 2, the last business day before AbbVie’s first offer, which was rebuffed by Shire.
Shares in Shire, which will own about 25 percent of the combined group, closed 3.9 percent higher at 49.96 pounds, while AbbVie was up 2.1 percent to $54.65 at 1615 GMT.
Gonzalez said Shire Chief Executive Officer Flemming Ornskov, whose tenure at the drugmaker was marked by earnings upgrade after earnings upgrade, would stay on, initially to help with integration and then to head a dedicated rare disease division.
Separately, Shire raised its earnings guidance for the year on Friday, to low-to-mid 30 percent growth, from mid-to-high 20 percent growth. The company, which also produces hyperactivity drug Vyvanse, reported record revenue of $1.5 billion for its second quarter and a 42 percent jump in its preferred earnings measure of non-GAAP adjusted earnings per ADS to $2.67.
Shire was advised by Goldman Sachs, Morgan Stanley, Deutsche Bank, Evercore and Citi, while AbbVie was advised by J.P.Morgan.