Another US drugmaker is doing the US tax avoidance boogie.
North Chicago-based AbbVie, maker of arthritis drug Humira, is close to a deal to buy Dublin-based Shire, which makes Adderall, used to treat ADHD, for $53 billion in cash and stock.
The deal will allow AbbVie to take advantage of lower UK tax rates, which are set to drop to 20 percent next year — compared to a 35 percent tax rate in the US.
The trans-Atlantic tax-motivated mergers, known as tax inversions, have been coming at an accelerate rate in 2014.
Just last week, Minneapolis-based Medtronic, a maker of medical devices, paid $42.9 billion for health care products maker Covidian Plc, which is based in Ireland.
While Congress has promised to pass a bill aimed at curbing tax inversions while it works out changes to the US tax code, nothing has emerged yet.
“It’s becoming increasingly disadvantageous to be a US-based multinational,” Eric Toder, co-director of the Tax Policy Center, a nonpartisan Washington, DC, think tank told the Boston Globe. “So what’s the solution? You stop being a US-based multinational.”
Shire said it was ready to recommend the deal to its shareholders.
“The proposed offer seems a fair price that represents good value for both companies’ shareholders,” Mick Cooper, an analyst at Edison Investment Research, told Reuters. Shares in
Shire, founded in 1986, hit a record high of 50.45 pounds in mid-morning trading.
AbbVie is eager to buy Shire both to reduce its US tax bill and to diversify its drug portfolio — as its Humira, the best-selling drug in the world, loses its patent protection in late 2016.
Analysts at Barclays estimated the move would provide AbbVie an estimated $1.3 billion tax savings by 2020.
“We expect the majority of the tax savings to be realized within the first two years,” Barclays analysts said. “Strategically AbbVie acquires Shire’s quality growth assets in platforms including rare diseases, neuroscience and ophthalmology, easing investor concerns about over-reliance on Humira and offering future growth opportunities.”
Analyst Alistair Campbell at banking group Berenberg said there were few other British pharmaceutical companies that would suit a tax inversion takeover.
“The company has to be of a certain size, because around 20 percent of the shareholders post deal must be shareholders in the target company, so you can’t go for small companies,” he said. “Glaxo is too big, Astra has had an approach from Pfizer and Shire has now gone.”
Smith & Nephew Plc, Europe’s largest maker of artificial joints, has been seen as a possible contender, with US-based Stryker Corp. forced to say it would not bid for the group after reports linking it with a deal circulated in May.
Sweden’s Meda AB rejected an improved takeover offer from US generics firm Mylan Inc. in April, which could have helped reduce taxes.
The approach for Shire, founded in Britain, has been far less controversial than the move for AstraZeneca. Headquartered in Dublin, it is managed from Boston and has most of its sales in the US, resulting in a relatively small business footprint in Britain.
Shire CEO Flemming Ornskov had said he was happy for the company to be sold at the right price, but like AstraZeneca in its defense against Pfizer, he had set out a detailed case as to why it was worth a lot more than AbbVie was originally offering.