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Fifth time the charm? Shire open to new $53B offer from Abbvie in huge tax inversion deal

By Nuala Moran, Staff Writer

LONDON – It looks like the fifth time is lucky for Abbvie Inc. after Shire plc agreed to open negotiations on a sale following an increased offer of £53.20 (US$90.98) per share, valuing the company at £31 billion.

This fifth proposal is up from the £51.15 per share offer Abbvie made last Wednesday, July 8, which was itself a 10.6 percent improvement on the £46.26 per share on the table when Abbvie’s interest was first disclosed on June 20.

The new offer consists of £24.44 in cash, an increase of £2 per share over last week’s proposal, and 0.8960 shares in new Abbvie for each Shire share. The paper component compares to 0.8568 Abbvie shares offered on July 8, and to 0.7988 Abbvie shares per Shire share that were on the table on June 20.

The £53.20 proposal represents a 42 percent premium to Shire’s closing share price on June 19.

In addition to more cash, the percentage of the merged company that would be owned by Shire investors has increased from 23 percent under the terms disclosed on June 20, to 25 percent in the latest proposal.

Shire said on Monday that it will recommend the offer to investors once other terms are agreed.

Under UK takeover rules, Abbvie now has until Friday July 18 to conduct its due diligence and make a firm offer. However, the period can be extended if Shire agrees.

It seems that with the cat and mouse chase finally warming into courtship, both sides will be keen for the deal to go through.

Although Shire was founded in the UK in 1986 and is quoted on the London Stock Exchange, there will be no political opposition to its acquisition. This is in contrast to the protests around Pfizer Inc.’s attempt to buy Astrazeneca plc and reflects the fact that ‑ against Astrazeneca’s 7,000 UK employees ‑ Shire has only a few hundred staff in the UK.

In addition, the company is run from Boston, Mass., and headquartered in Dublin, Ireland.

Indeed, in some senses the acquisition will represent a homecoming, since a major part of the rationale is for the merged company to move its headquarters to London, enabling Abbvie to secure a UK tax domicile.

The move will cut Abbvie’s corporation tax rate from 22 percent currently, to 13 percent in 2016. It also will allow the company to free up profits held in foreign subsidiaries that would be taxed if repatriated to the U.S. The UK does not tax foreign earnings that have already been taxed in other jurisdictions.

The new Abbvie will retain its operational headquarters in Chicago and its listing on the New York Stock Exchange.

U.S companies can move their tax domicile abroad if foreign shareholders own at least 20 percent of the stock, allowing them to pay lower rates of tax on their non-U.S. earnings. A number of U.S. multinationals are sitting on substantial profits in low-tax foreign subsidiaries that would be taxed up to the U.S. rate of 35 percent if repatriated.   

However, such tax inversions are increasingly controversial. President Barack Obama’s 2015 budget proposes the threshold for foreign ownership should be increased to 50 percent and in May, 14 senators introduced a bill that would impose an immediate two-year moratorium on companies moving their tax domicile unless 50 percent of the shares are foreign owned.

The risks attached to this financial maneuver were cited by both Astrazeneca in rebuffing Pfizer’s bid, and by Shire when rejecting Abbvie’s earlier overtures.

Abbvie’s other main interest in Shire is to reduce its dependence on its TNF-alpha inhibitor Humira (adalimumab) – which at $10.7 billion accounted for 57 percent of total sales of $18.7 million in 2013. The U.S. patents on the rheumatoid arthritis treatment expire in 2016.

A year after its separation from Abbott Inc., Abbvie started to scope Shire’s potential as an acquisition target in late 2013. It opened the bidding with an offer of £39.50 per share on May 3. That was rebuffed on May 9, when the Shire board decline to engage in discussions.

A revised bid on May 13 upped the price to £40.97, but this was rejected on May 20. When the third bid of £46.26 was tabled on May 30, Shire again refused to engage, but Abbvie’s pursuit became public knowledge on June 20, 2014. (See BioWorld Today, June 23, 2014 and June 26, 2014.)