Abbvie's $52bn takeover of Shire (SHP) is suddenly in doubt. In an unexpected move, the Chicago-based company said it would reconsider its July offer following recent changes by the US Department of Treasury to the country's tax regulation. New legislation in the US could make it harder for US companies to create 'tax inversion' deals, whereby they move their official domicile via large-scale mergers or acquisitions to another country to benefit from leaner corporation taxes.
Abbvie's (US:ABBV) board will meet next week to decide if it will pull the plug entirely - paying a nominal $1.6bn break fee - or try to close the deal before the end of the year. It could also amend the amount offered for Shire earlier this year. At the moment, it's rumoured Shire still believes the transaction will go ahead, but investors are clearly less confident as shares in the drugs giant still fell 26 per cent in early trading on Wednesday.
If the deal collapses, it will be the biggest M&A casualty this year. Just days before Abbvie announced its change of heart, US firm Steris (US:STE) announced a $1.9bn cash-and-share takeover of FTSE 250 constituent Synergy Healthcare (SYR). It was the first American company to announce a tax inversion deal since the Obama administration revealed its clamp down on such transactions. The Ohio-based medical equipment maker plans to move its domicile to the UK, thereby lowering its tax rate from 31.3 per cent to roughly 25 per cent by 2016. But it insisted tax benefits are not the main motivation for the takeover.
Following news of the Steris/Synergy tie-up, City commentators agreed the US clampdown hadn't eliminated the possibility of tax inversion deals altogether. But Abbvie's cold feet implies the threat of new legislation has some weight. Shares in rival group AstraZeneca (AZN) fell 4 per cent in early trading on the day of Abbvie's announcement. Clearly, investors doubt Pfizer will revive its approach to the Anglo-Swedish pharma group after its failed takeover bid in May, which was partly motivated by tax benefits and the repatriation of a substantial cash pile.
