AbbVie Inc and Shire PLC’s US$54.8 billion deal is set to make AbbVie the largest US company to move its legal address abroad, which would lower its taxes, as US lawmakers seek ways to curb similar transactions.
Shire shareholders are to get cash and stock valued at US$89.67 a share, the companies said on Friday in a statement.
It would allow Chicago-based 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.
“This is a transaction that we believe has excellent strategic fit, well beyond the tax impact,” AbbVie chief executive officer Richard Gonzalez said during a conference call.
At the same time, Gonzalez said the higher corporate tax rate in the US is pushing companies abroad.
“Companies like ours need access to our global cash flows,” he said. “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 scrutinizing so-called tax inversions, and Senator Ron Wyden, a democratic representative from Oregon, is proposing a bill that would make the process more difficult.
A congressional panel estimated this year that preventing future inversions would save US$19.5 billion in otherwise forgone tax revenue over the next 10 years.
Gonzalez said government action to stop tax inversions probably would not halt the Shire deal.
“We’ve looked carefully at that aspect and we believe its executable,” he said.
Every deal that gets done, though, puts pressure on the US government to act, said Brian Corvino, an analyst with Decision Resources Group.
In negotiations, Shire sought protection in case the US passes a law undercutting the tax gains and puts closing the deal at risk, said two people with knowledge of the matter.
The agreement calls for AbbVie to pay Shire a breakup fee of 3 percent of the deal’s value, about US$1.6 billion, or reimburse costs of not less than US$500 million, if the purchase falls through, according to the statement.