DUBLIN – Shareholders in Allergan plc voted with alacrity to approve Abbvie Inc.'s $63 billion takeover of the Botox maker at an extraordinary general meeting in Dublin Monday. Investors voted 99.64% in favor, with just .36% voting against. Although the outcome was never in any doubt, an unexpected, last-minute €572 million (US$631 million) charge on the transaction, courtesy of the Irish government, is likely to have swayed all but the most hardened holdouts to cast their votes in favor of the deal, lest Abbvie were to get cold feet.
During his budget speech last week, Ireland's Minister for Finance Paschal Donohue unveiled a new 1% stamp duty charge on takeovers that employ a cancellation scheme, whereby the acquisition target cancels its existing shares and re-issues new equity to the acquiring company. Although a 1% charge is attached to ordinary share sales in Ireland, companies acquiring listed firms routinely use this ploy, under chapter one of part nine of the Companies Act 2014, to avoid the tax. Last Tuesday, Donohue introduced a resolution, with immediate effect, to The Stamp Duties Consolidation Act 1999 to eliminate the anomaly and bring such transactions into line with ordinary share dealings.
North Chicago-based Abbvie is the biggest fish to be caught on this particular hook. The company's sole response to a request for comment was to state: "We are aware of the recently enacted legislation and are considering its applicability to the transaction." It is difficult to see how it could possibly avoid the charge, given that it has explicitly stated in its own SEC disclosures that it has structured the Allergan transaction precisely in the way that Donohue has now targeted.
The levy represents another expensive twist in Abbvie's ongoing adventures – and misadventures – in M&A in Ireland. It had to fork out $1.6 billion to Dublin-based Shire plc (now part of Takeda Pharmaceutical Co. Ltd.) after pulling out of an agreed $55 billion takeover of that firm in 2014. (See BioWorld, Oct. 17, 2014.)
The attempted takeover of Shire fell afoul of changes in U.S. tax rules, which changed the deal economics. Further U.S. Treasury moves also had the effect of derailing Pfizer Inc.'s proposed $160 billion takeover of Allergan, which, at that time, was a larger entity than it is now. (See BioWorld, April 7, 2016.)
Allergan and Shire were the two most prominent examples of Irish domiciled-entities that washed up on the banks of the Liffey (a river in Ireland) because of Ireland's tax code rather than its life sciences innovation ecosystem. The present transaction was never structured as a tax inversion deal, however, as those arrangements have been legislated out of existence. Abbvie had always stated its intention of remaining incorporated in Delaware, while North Chicago will continue as its global headquarters. The deal was always about diversifying its product portfolio away from its mammoth-sized Humira (adalimumab) franchise. Allergan reported Q2 revenues of $4.1 billion, slightly behind Abbvie's Q2 sales of Humira, which came in at about $4.9 billion.
Assuming the transaction goes ahead – Abbvie would have to pay Allergan a $1.25 billion break-up fee if it didn't – it will further thin the ranks of Irish-domiciled pharma firms with little or no substantive connections to Ireland. Other firms that are nominally headquartered in Ireland are not at the same scale. Dublin-based Horizon Therapeutics plc is currently valued at about $5 billion, for example, while Perrigo Company plc, also of Dublin, is valued at about $7.2 billion. Mallinckrodt plc is now on death watch, because of a looming cash crunch arising from maturing debt and potentially large liabilities arising from its role in America's opioid crisis.