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AbbVie close to Shire deal

Chicago-based AbbVie has won Shire's approval, but will US regulators stymie a deal
July 16, 2014

It looks like US firm AbbVie (US:ABBV) could succeed where Pfizer (US:PFE) failed in its aborted attempt to take over British pharma giant AstraZeneca (AZN). Abbvie, by comparison, is closing in on a successful £31bn deal to take over speciality pharma group Shire (SHP) although there is a potential fly in the ointment in the form of press reports that US Treasury secretary Jacob Lew has called for rapid amendments to the US tax regime to stop companies such as AbbVie buying offshore and switching their domicile to a lower tax regime.

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The two sides have been thrashing out the finer details this week after London-listed Shire said it was prepared to recommend the latest £53.20-a-share bid made by AbbVie. The Chicago-based drugmaker has until Friday 18 July to make a firm offer under UK takeover rules.

Analysts have highlighted that the latest offer represents a 90 per cent premium on Shire's share price at the beginning of the year, and is 35 per cent above AbbVie's original pitch. Crucially, the bid values Shire at about 26 times 2015 earnings, which is well above the global pharma sector average of 16 times.

The potential deal is the latest example of a US company attempting to buy a European rival as a way to lower its tax bill. A foreign acquisition for AbbVie could be a vehicle to move their tax domicile overseas - in this case the UK - putting offshore cash out of reach of punitive US tax rates.

Interestingly, Shire has not prompted the same political response from the British government as AstraZeneca did last month. Shire was founded in Britain, but its main market is in the US, with revenues driven from treating attention deficit hyperactivity disorder (ADHD). Furthermore, its British workforce is down to 500 and tax affairs were moved to Ireland some years ago.

Rival bidders have not yet emerged, but AbbVie could struggle to up its bid much more. Adding more cash to its proposal means it could end up with $30bn in net debt. Furthermore, the two companies will have to decide who should assume the risk for a change in US rules, which could prevent companies moving abroad to lower their tax bill.