AbbVie Reconsiders Acquisition of Shire

The board of Shire plc issued a statement to report that the board of AbbVie Inc. is reconsidering its recommendation of its offer for acquiring Shire. Shire confirmed that it received notice from AbbVie that its board will consider whether to withdraw or modify its recommendation in light of the impact of the US Treasury Notice of September 22, 2014, which outlined the US Department of Treasury’s new rules on tax inversion. Tax inversion refers to the location of a company’s corporate headquarters to achieve a lower corporate tax rate.

AbbVie’s latest offer to acquire Shire was an approximately $54.7-billion proposal in July 2014. The deal was agreed to by the companies’ board of directors, and both companies said that they would recommend the transaction to their respective shareholders. The deal, which if approved, was expected to close in the fourth quarter of 2014, and involved a tax inversion structure for AbbVie. Under the proposed deal, AbbVie would form a new company, New AbbVie, which was to be incorporated in Jersey, the UK, Shire’s current place of incorporation. Following the completion of the deal, New AbbVie would become the holding company of the Shire Group and the AbbVie Group. 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. The new company planned to retain operational headquarters in Chicago with a presence in both the US and UK and be listed on the New York Stock Exchange.

AbbVie’s proposed deal, along with others, such as Pfizer’s proposal to acquire AstraZeneca earlier this year, were two mega deals that involved tax inversion, a practice that has drawn federal and Congressional attention. In a statement, the board of Shire said it had not been provided with a detailed analysis of AbbVie's tax assumptions and AbbVie's notice did not quantify the anticipated financial impact of the US Treasury Notice on the combination. 

Shire is favoring that AbbVie proceed with the deal. “The board of Shire believes that AbbVie should proceed with the recommended offer on the agreed terms in accordance with the Cooperation Agreement,” said Shire in a statement. The Shire board will meet to consider the current situation. In the event that the AbbVie Board adversely changes its recommendation and AbbVie stockholder approval is not obtained (or another triggering event occurs), a break fee of approximately $1.635 billion would be payable by AbbVie to Shire.

Under the agreement, AbbVie must provide three business days' notice of any intention to consider a change in recommendation. Accordingly, AbbVie’s board planned to meet on October 20, 2014, unless Shire agreed to waive the three-day notice, which Shire  did, on October  15, which now allows AbbVie to meet sooner to consider whether to keep, modify, or terminate the acquisition proposal for Shire.

Source: Shire and AbbVie

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