What’s new?
• AbbVie withdraws offer
• Break fee of $1.6bn for Shire
• Shares in other inversion takeover targets sell off
Investors have been minded to shrug off the US Treasury’s drive to clamp down on so-called tax inversions as public relations puff - until now. The collapse of the Shire (SHP) takeover by Chicago-based group AbbVie (US:ABBV) indicates that the reforms may have more traction than first thought.
A tax inversion is a transaction in which a US-based company officially appoints a foreign company as its parent in order to avoid US taxes. But in late September the US Treasury made it harder for ‘inverted’ US companies to access earnings from foreign subsidiaries. It also prevented inverted companies from transferring cash or property to the new parent, effectively closing the loophole that allowed them to avoid US tax. Finally, when a company tries to 'invert' through a foreign merger or takeover, the new laws require the former owners of the US entity to own less than 80 percent of the new combined entity.
In light of these changes, it’s hardly surprising that AbbVie reconsidered its valuation of Shire -previously £53 a share. The timing was more surprising: just days before, US firm Steris (US:STE) announced its plans to buy UK mid-cap Synergy Healthcare (SYR) for $1.9bn. As yet, there is no indication the more recent deal, which would also involve a corporate inversion, won’t complete.
Jeffries says…
Buy. This about-turn is completely incongruent with AbbVie’s recent rhetoric. But assuming the transaction is now 'dead', Shire’s fundamentals appear strong and we would buy when the dust has settled. The withdrawal of the recommendation does not itself 'kill' the merger, but it's likely both parties will agree to let the agreement lapse. Given the potential break-fee from AbbVie, Shire could be even more favourably positioned to execute its own acquisition strategy, particularly with orphan drug assets.
Panmure Gordon says…
Buy. The question is: what do we do with Shire going forward? With a break-fee of $1.6bn, Shire will at least be compensated somewhat. But is it possible that losing four months of strategic direction might have damaged its defence plans? Key staff might have made their own exit plans, for example. However, Shire's rare diseases business remains an attractive asset, for which we expect multiple suitors. We now know AbbVie was flying by the seat of its pants. The deal is dead and many months of litigation will undoubtedly ensue.
