Another major takeover is in the air, and one that touches on a raw nerve in Washington, D.C: tax inversions.
Chicago-based pharmaceutical firm AbbVie has agreed to acquire Shire, which makes medicines that treat rare diseases, for about $54 billion. When the deal closes, the newly combined company will be one of the 50 largest companies in the world with a valuation of more than $137 billion, surpassing that of Boeing, McDonald’s and Cisco, according to the New York Times.
It also paves the way for AbbVie, which was spun off from Abbott Labs, to relocate to the tax-friendly U.K., where Shire is based. And forget corporate dissembling. AbbVie, the maker of arthritis drug Humira, isn’t pretending the move wasn’t a significant incentive for the transaction.
AbbVie CEO Richard Gonzalez confirmed as much in a call with analysts, says the Times. “This structure provides AbbVie with flexible access to its global cash flows,” the paper quoted him as saying.
But at the same time, Gonzalez insisted it’s not the only reason for the deal. “This is a transaction we believe has excellent strategic fit,” he said. “We wouldn’t be doing it if it was just for the tax impact.”
The deal would considerably slash AbbVie’s effective tax rate to 13% by 2016, versus 22.6% last year, according to the Times.
The monster merger comes amid a firestorm of protest in Washington over U.S. companies moving overseas to avoid paying higher taxes. Treasury Secretary Jacob Lew has been leading the call, trying to persuade Congress to pass legislation that would put a halt to these tax inversions.
Unfortunately for AbbVie, Lew’s proposal is retroactive, which could be impede the company’s plans to relocate its tax domicile to Britain. However, notes the Times, Sen. Orrin Hatch (R-Utah), the ranking member of the State Finance Committee, has objected to any retroactive penalties.
AbbVie reportedly is confident that it won’t be legally prevented from reincorporating in Britain. The proposed deal does not contain a provision that would allow it, as the buyer, to “walk away or negotiate terms if inversion laws change.”
According to sources sources cited by the Times, apparently it was Shire that “asked that no such provision be included in the merger agreement, and AbbVie agreed to not include it.”