AbbVie and Shire Terminate $54.7 Billion Merger AgreementBy
AbbVie Inc. and Shire have agreed to terminate their proposed $54.7-billion merger following the decision by AbbVie's board to withdraw support for the proposed transaction. The company's decision was based upon its assessment of the September 22, 2014 notice issued by the US Department of Treasury concerning corporate tax inversions, whereby a US-based multinational company restructures so that the US parent is replaced by a foreign corporation as a means to achieve a lower tax rate. With the decision not to proceed with the deal, Shire is entitled to a $1.6-billion break-up fee from AbbVie.
AbbVie’s proposed acquisition proposal of Shire involved a tax inversion structure by which the New AbbVie was to become a holding company for the combined AbbVie and Shire and which was to be incorporated in Jersey, the UK, Shire’s current place of incorporation. Through its incorporation in the UK, the AbbVie board expected the transaction to reduce New AbbVie’s effective tax rate to approximately 13% by 2016. In a statement, AbbVie said that the notice introduced an “unacceptable level of risk and uncertainty given the magnitude of the proposed changes and the stated intention of the Department of Treasury to continue to revise tax principles to further impact such transactions.”
Commenting on the transaction termination, AbbVie's Chairman and Chief Executive Officer, Richard A. Gonzalez said: “The unprecedented unilateral action by the US Department of Treasury may have destroyed the value in this transaction, but it does not resolve a critical issue facing American businesses today. The US tax code is outdated and is putting global US-based companies at a disadvantage to foreign competitors in an area of critical importance, specifically investing in the United States. Comprehensive tax reform is essential to create competitiveness and to stimulate investment in the economy.”
Because AbbVie’s board of directors has withdrawn its recommendation to proceed with the transaction, AbbVie believes it is unlikely that AbbVie stockholders would support the combination, which is a condition to closing the transaction. Shire and AbbVie have agreed to the termination of the cooperation agreement between the two companies and not to proceed with the proposed scheme of the arrangement. In addition, AbbVie confirmed that it does not wish to switch to a contractual takeover offer. As a result, the UK Takeover Panel confirmed that the transaction will lapse following Shire announcing the following: its withdrawal of its recommendation; that it will not proceed with the scheme of arrangement; and that it has agreed to the release of AbbVie from its obligation to proceed with the offer. In a separate statement, Shire confirmed that it has agreed to terminate the cooperation agreement between the two companies and to not proceed further with the transaction.
As a result, AbbVie will not be convening an AbbVie stockholder meeting to consider the transaction. Under the UK Takeover Code, except with consent of the UK TakeoverPanel, AbbVie must not, among other things, announce a further offer for Shire within 12 months from the date of this announcement. AbbVie has agreed to pay Shire the breakfee of approximately $1.635 billion. Shire's right to receive the break fee will be Shire's sole and exclusive remedy for all losses and damages in connection with the proposed transaction.
In response to the deal now being withdrawn, Shire Chairman Susan Kilsby, said: “Shire has an exceptional track record of delivering value and growth. This growth profile has been accelerated by our new management team executing a clear and focused strategy. Importantly, we have maintained this momentum since July and made material progress across our business. While we are disappointed that the offer will not now complete, we continue to enjoy excellent prospects as we execute our plan to double Shire's product sales to $10 billion by 2020.”
Following the announcement to withdraw the deal with Shire, AbbVie’s board of directors authorized a new $5-billion stock repurchase program and increased the company’s quarterly cash dividend by nearly 17%.The authorization allows for the repurchase of up to $5 billion of the company’s common stock, which is expected to be executed over the next several years. The stock repurchase authorization permits shares to be repurchased in open market or private transactions, has no time limit, and may be discontinued at any time. Additionally, the board declared an increase in the company’s quarterly cash dividend from $0.42 per share to $0.49 per share, payable on February 13, 2015 to stockholders of record as of Jan. 15, 2015.
Source: AbbVie and Shire