(Reuters) - U.S. pharmaceutical company AbbVie has pulled the plug on its plan to buy Dublin-based drugmaker Shire , recommending shareholders vote against the planned $55 billion takeover following new U.S. tax rules.
SHIRE (SHP.LO)stands to be paid a break-up fee of about $1.64 billion if ABBVIE (ABBV.NY)s shareholders vote against the deal.
The reversal -- which had been widely expected after Chicago-based AbbVie said it was reconsidering the deal -- hands a major scalp to the U.S. Treasury, which has been fighting to make tax-avoiding acquisitions more difficult.
The U.S. government's tax proposals are designed to make it harder for American firms to shift their tax bases out of the country and into lower cost jurisdictions in Europe.
"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," AbbVie's chief executive Richard Gonzalez said in a statement.
AbbVie's move for Shire, a leader in drugs to treat attention deficit disorder and rare diseases, was announced in July amid a spate of deal-making in the pharmaceutical sector.
Gonzalez said at the time that the deal, involving the creation of a new U.S.-listed holding company with a tax domicile in Britain, was not just about tax.
But the firm said on Thursday that the changes in the U.S. tax regime "eliminated certain of the financial benefits of the transaction, most notably the ability to access current and future global cash flows in a tax efficient manner as originally contemplated in the transaction. This fundamentally changed the implied value of Shire to AbbVie in a significant manner."
News on Wednesday that AbbVie was cooling to the transaction hammered shares in Shire, sending them down 23 percent to where they were before the deal talks emerged in June and the shares were down a further 11 percent at 3,575 pence in early trade on Thursday.
SHAREHOLDER MEETING
AbbVie said the withdrawal of its recommendation alone would not cause a lapse in the offer for Shire and it must convene a shareholder meeting before Dec. 14 to vote on the deal.
A spate of so-called tax inversion merger deals, particularly in the healthcare sector, prompted the U.S. move to change its tax regulations, including placing a ban on loans that allow U.S. companies to access foreign cash without paying tax in the United States.
AbbVie said the breadth and scope of the changes "introduced an unacceptable level of uncertainty to the transaction".
The company also took a swipe at the "unilateral" nature of the U.S. government's move and complained about "the unexpected nature of the exercise of administrative authority to impact longstanding tax principles".
Representatives for Shire were not immediately available for comment.
AbbVie's second thoughts on the deal have surprised Shire investors, coming just weeks after Gonzalez, in the wake of the Treasury proposals, told employees of both companies he was "more energized than ever" about the transaction.
Aside from the tax benefits, buying Shire offered AbbVie a way to diversify its business and reduce reliance on arthritis treatment Humira, the world's top selling medicine, whose $13 billion in annual sales accounts for more than 60 percent of company revenue.
The Shire episode has also fueled doubts about whether Pfizer
(Additional reporting By Abhiram Nandakumar and Aurindom Mukherjee in Bangalore; Editing by Gopakumar Warrier and Greg Mahlich)
