AbbVie Inc.s board advised shareholders to vote against the takeover deal with Shire Plc., due to new tax rules imposed by the U.S. Treasury Department.
The U.S. government has been trying to tune down overseas mergers for some time now and in September the Treasury Department revealed new rules in an effort to restrain corporate buyers from avoiding U.S. taxes. Deals affected by those changes now seem less profitable and more difficult to achieve. And since the AbbVie-Shire takeover agreement wasnt closed, the newly adopted regulations will have an impact on it.
“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,” said AbbVies CEO Richard A. Gonzalez said in a statement cited by Bloomberg.
People familiar with the matter said that the North Chicago-based company was also concerned about more potential changes to U.S. laws, that could make future taxes heavier.
Stephanie Fagan, a spokeswoman for Shire, said the company had no comment on the AbbVie board decision to review the deal again.
AbbVie said that if the inversion does not complete, it would owe Shire about $1.635 billion, the 8th biggest break up fee in the last decade.
Both companies large investors were surprised by the possible cancellation and made comments about it for the Financial Times.
“It is clearly very unhelpful for holders of Shire shares. Shire is right to insist that the deal should go ahead. This has certainly come as a shock. Shire investors have not been in the loop, although neither it seems has the company” a Shire shareholder said.
A top tier share owner in AbbVie also expressed his view: “We were not aware that the company was considering this change, but let’s wait and see what happens. AbbVie will have to pay a big break fee, so it is not clear to us that pulling out of this deal is necessarily the right thing to do.”
A day after the U.S. pharmaceutical company announced it was re-evaluating the upcoming takeover deal, Shires shares dropped 30% to $170.49 in New York.
AbbVie Inc. gained 0.92% and closed at $54.63 on Wednesday on the NYSE, marking a one-year change of +18.55%. The company is valued at $87.05 billion. According to the Financial Times, the 9 analysts offering 12-month price targets for AbbVie Inc. have a median target of $67.00, with a high estimate of $85.00 and a low estimate of $54.00. The median estimate represents a 22.64% increase from the last price of $54.63