Shire deal will save AbbVie on US taxes

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Geneva / New York - Abbvie will be the largest US company to move its legal address abroad to lower its taxes following its $54.8 billion (R584bn) deal with Shire, which comes as US legislators seek ways to curb the transactions.

Shire holders would get cash and stock valued at £52.48 (R956.40) a share, the firms said on Friday. The price is 53 percent above Shire’s closing level on May 2, before AbbVie made its first takeover proposal.

The so-called inversion deal will allow AbbVie to move its legal residence, though not its operations, to the UK, lowering its tax rate in 2016 to 13 percent from 22 percent.

Shire’s drugs for attention deficit hyperactivity disorder and rare diseases will diversify AbbVie’s portfolio, which is dominated by the rheumatoid arthritis medicine, Humira.

Analysts asked if the deal was being done primarily for tax reasons. “This is a transaction that we believe has excellent strategic fit, well beyond the tax impact,” said AbbVie chief executive Richard Gonzalez. “We wouldn’t be doing it if it was just for the tax impact.”

But he said said the higher corporate tax rate in the US was pushing companies abroad. “Today we’re at a disadvantage compared to our foreign competitors, and that’s the debate we should be having around inversions and our tax code.”

The US government has been scrutinsing such deals recently. A congressional panel estimated this year that preventing future inversions would preserve $19.5bn in otherwise forgone tax revenue over the next 10 years. Gonzalez said government action to stop tax inversions would probably not halt the Shire deal.

Every deal that was done, though, put pressure on the state to act, said Brian Corvino, an analyst with Decision Resources Group. – Bloomberg

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